Section 80LA of ITA, 1961 : Section 80La: Deductions In Respect Of Certain Incomes Of Offshore Banking Units And International Financial Services Centre

Explanation using Example

Imagine a scheduled bank, ABC Bank Ltd., which has set up an Offshore Banking Unit (OBU) in a Special Economic Zone (SEZ) in India. The OBU earns income by providing financial services to overseas clients. In the financial year 2022-2023, the OBU's income from its operations amounts to INR 10 crores.

Under Section 80LA of the Income-tax Act, 1961, ABC Bank Ltd. is eligible to claim a deduction on its income earned through the OBU. Since the bank obtained the necessary permission to operate the OBU in the SEZ in the financial year 2021-2022, it is within the first five consecutive assessment years of its operations.

Therefore, for the assessment year 2023-2024, ABC Bank Ltd. can claim a deduction of 100% of the OBU's income, which is INR 10 crores. This means that the bank's taxable income will be reduced by this amount, leading to significant tax savings.

However, to avail of this deduction, ABC Bank Ltd. must furnish a report from a certified accountant along with its income tax return, verifying that the deduction is being correctly claimed as per the provisions of Section 80LA. Additionally, the bank must also provide a copy of the permission granted to operate in the SEZ.