Under the provisions of Section 80-IB a partial tax holiday is allowed in respect of the profits and gains of a new industrial undertaking set up on or after 1.4.1991 and before 1.4.1995, or an approved hotel which starts functioning from that date. In the case of companies, 30% of the profits derived from new industrial undertakings, etc., is deductible from the gross total income for a period of ten years; in the case of other assessees (including non-residents) 25% of such profits will be deductible for a like period. The benefit of “tax holiday” is admissible to all small-scale industrial undertakings irrespective of the type of their manufacturing activity. An industrial undertaking is regarded as a small-scale industrial undertaking if the aggregate value of the plant and machinery installed, on the last day of the previous year, for the purpose of the business of the undertaking does not exceed 60 laths. In the case of other industrial undertakings it is allowed only if the new industrial undertaking is not engaged in the production of articles listed in the 11th schedule to the Income Tax Act. There are certain other requirements for the eligibility for this deduction.
A 10-year tax holiday for any enterprise which builds, maintains or operates any infrastructure facility such as roads, highways, express ways, water treatment system, solid waste management, new bridges, airports, inland waterways and inland ports and rapid rail transport systems on BOT or BOOT or similar other basis on or after 1.4.1995 would be allowed under Section 801A. Likewise, SSI industrial units, commencing production on or after 1.4.95 and any time before 31.3.2002 would also be allowed partial tax holiday of 25% or 30% for 10 years out of an initial period of 15 years.
A five-year tax holiday under Section 80-lB of the Income Tax Act, 1961, to approved companies engaged in scientific and industrial research and development activities on commercial lines is allowed. This incentive shall be available to any company that has as its main objective, activities in the areas of scientific and industrial research and development and which has been accorded approval by the prescribed authority, namely, Secretary, Department of Scientific and Industrial Research. This tax holiday shall be available to any company, whether new or existing, which is accorded approval by the aforesaid prescribed authority at any time before 1.4.2007. The 100% deduction for a five- year period, shall commence from the assessment year relevant to the previous year in which the approval by the prescribed authority is accorded to such a company.
The benefit of tax holiday under Section 80-TA, to other infrastructure facilities like water supply projects, irrigation systems, sanitation and sewerage systems has also been extended.
The Finance Act, 2002 had, with effect from the A.Y. 2003-2004, provided the grant of deduction under Section 80-IA(2) to an undertaking which develops and operates or maintains and operates a Special Economic Zone. Besides, separate audit for undertakings claiming deduction under Sections 80-IA and 80-lB has also been made mandatory for companies and co-operative societies.
The deduction allowed at 100% of the profits for ten assessment years of a scientific research and development company would be so allowed even where the approval by the prescribed authority is received before 31.3.2012.