Section 80IC of the Income Tax Act

Section 80-IC of Income Tax Act, 1961

Section 80-IC of the Income Tax Act 1961 offers tax incentives for businesses operating in specific regions of India, aiming to promote industrial development and economic growth in less-developed areas. This section allows eligible businesses in designated states, such as Sikkim, Himachal Pradesh, Uttarakhand, and the Northeastern states, to claim deductions on profits from their business activities.

Amount of Deduction Available Under Section 80-IC

State

Amount of deduction

Himachal Pradesh or Uttaranchal

First 5 years: 100% of profits starting from the initial assessment year.
Next 5 years: 25% of profits (30% for companies).

Sikkim or North Eastern States

100% of profit for 10 years starting from the initial assessment year**

**Initial Assessment Year: In this process, the business begins manufacturing or producing goods, starts operations, or completes a significant expansion.

Conditions to Claim Deduction Under Section 80-IC

Here are the key conditions required to claim a deduction under Section 80-IC:

Condition

Details

New Enterprise

The enterprise must be a new undertaking, not formed by splitting up or restructuring an existing business.
Exception: Businesses that discontinued operations due to major damage (building, machinery, etc.) caused by events like floods, earthquakes, accidental fire, riots, or enemy action can be eligible if they rebuild.

New Plant & Machinery

The undertaking must not be formed by transferring used plant and machinery.
Exception: Old machinery up to 20% of the total value of plant and machinery is allowed. Second-hand imported machinery is considered new if: It was not previously used in India
It’s imported to India
Depreciation cannot be claimed for pre-installation use.

Commencement Period

The business must start operations or substantial expansion within specific dates based on location:
Sikkim: 23 Dec 2002 - 31 Mar 2007
Himachal Pradesh or Uttarakhand: 7 Jan 2003 - 31 Mar 2012
Northeastern States: 24 Dec 1997 - 31 Mar 2007

Substantial Expansion

Substantial expansion is defined as an investment in plant and machinery that is at least 50% of the book value at the start of the year in which the expansion occurs.
Example: If A Ltd makes an investment reaching 51% in one expansion over two years, it qualifies. For B Ltd, however, two smaller expansions (28% + 23%) do not qualify, as each is under 50%.

Audit Report

The deduction is only available if the accounts are audited by a Chartered Accountant (CA). The CA must sign the audit report, which is in Form 10CCB, and submit it along with the Income Tax Return.

Production of Specified Goods

Each state has specific guidelines on goods that qualify for deductions:
- Sikkim: Articles not listed in the Thirteenth Schedule (Part A) in industrial zones; articles in the Fourteenth Schedule (Part B) in other areas.
- Himachal Pradesh/Uttarakhand: Articles not in Thirteenth Schedule (Part B) in industrial zones; articles in Fourteenth Schedule (Part C) in other areas.
- Northeastern States: Articles not in Thirteenth Schedule for industrial zones; articles in Fourteenth Schedule (Part A) in other areas.
Eligible Industrial Zones include Export Processing Zones, Industrial Estates, Parks, and Software Technology Parks.

Timely Income Tax Return

The Income Tax Return must be filed on time, with the deduction claimed in the return. A belated return disqualifies the deduction.

Understanding Your Tax Liability

Effective financial planning requires a clear understanding of your tax obligations. An Income Tax Calculator is a valuable tool that simplifies this process. By inputting your income and eligible deductions, this online tool provides an estimated tax liability. This eliminates the need for manual calculations, saving time and reducing errors. Leveraging an income tax calculator empowers you to optimize your tax savings legally and make informed financial decisions.

FAQs

Which states are covered under Section 80-IC?

The states covered under Section 80-IC are:

Arunachal Pradesh
Assam
Manipur
Meghalaya
Mizoram
Nagaland
Sikkim
Tripura
Himachal Pradesh
Uttarakhand

What is the amount of deduction available under Section 80-IC?

The amount of deduction varies depending on factors like the industry, location, and period of operation. Generally, it ranges from 10% to 100% of the profits and gains derived from the eligible business.

What are the eligibility criteria for claiming deduction under Section 80-IC?

To claim the deduction, businesses must meet specific criteria, including:

Location: The business must be located in one of the specified states.
Industry: The business must be engaged in a specified industry.
Time Limit: The deduction is available for a specific period.
Other Conditions: The business must fulfill other conditions like obtaining necessary approvals, maintaining proper records, and filing income tax returns on time.

How can I claim the deduction under Section 80-IC?

To claim the deduction, you need to file your income tax return and provide the necessary documentation to prove your eligibility. It's advisable to consult with a tax professional to ensure accurate calculations and compliance with all relevant rules and regulations.