Section 80-IAC of Income Tax Act for AY 2023-24

Section 80-IAC of Income Tax Act 1961 amended by Finance Act 2022 and Income-tax Rules. Special provision in respect of specified business.

Amended and updated notes on section 80-IAC of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to special provision in respect of specified business.

Chapter VIA (Sections 80A to 80U) of the Income Tax Act 1961 deals with the provisions related to deductions to be made in computing total income. Section 80-IAC of IT Act 1961-2022 provides for special provision in respect of specified business.

Recently, we have discussed in detail section 80-IAB (Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone) of IT Act 1961.

Today, we learn the provisions of section 80-IAC of Income-tax Act 1961 as amended by the Finance Act 2022. The amended provision of section 80-IAC is effective for financial year 2022-23 relevant to the assessment year 2023-24.

In this article, you will learn detail of the provisions of section 80-IAC of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.

Section 80-IAC: Special provision in respect of specified business

Section 80-IAC (1):

Where the gross total income of an assessee, being an eligible start- up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

Section 80-IAC (2):

The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of seven years beginning from the year in which the eligible start-up is incorporated.

[Sub-section (2) of section 80-IAC has been amended w.e.f. 01.04.2021 by the Finance Act, 2020.]

Section 80-IAC (3):

This section applies to a start-up which fulfils the following conditions, namely:—

  • (i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

  • (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation-1: For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

  • (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
  • (b) such machinery or plant is imported into India;
  • (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

Explanation-2: Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

Section 80-IAC (4):

The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).

Explanation: For the purposes of this section,—

  • (i) “eligible business” means a business carried out by an eligible start-up engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;
  • (ii) “eligible start-up” means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—
    • (a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2023;
    • (b) the total turnover of its business does not exceed twenty-five crore rupees in the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed; and
    • (c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;
  • (iii) “limited liability partnership” means a partnership referred to in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

[Sub-clause (a) of clause (ii) of Explanation of section 80-IAC amended (substituted) w.e.f. 01.04.2022 by the Finance Act, 2022.]

[Sub-clause (b) of clause (ii) of Explanation of section 80-IAC has been amended w.e.f. 01.04.2021 by the Finance Act, 2020.]


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