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Deduction in respect of Eligible Business of Eligible Start Up [Section 80-IAC] [W.e.f. A.Y. 2017-18]

  1. Conditions to be satisfied to claim exemption under section 80-IAC(1) [Section 80- IAC(3)]:

  2. 100% Deduction of Profit from Eligible Business [Section 80-IAC(1)]:

  3. Deduction to be allowed for any 3 Consecutive Assessment years out of 5 Years [Section 80-IAC(2)]:

  4. Further conditions applicable for an assessee claiming deduction under section 80-IAC [Section 80-IAC(4)]:

1. Conditions to be satisfied to claim exemption under section 80-IAC(1) [Section 80- IAC(3)]:

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

  1. The assessee is a company or a limited liability partnership (LLP) and engaged in an eligible business

  2. (“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).

  3. The above company or LLP is incorporated after March 31, 2016 but before April 1, 2021.

  4. Annual business turnover of the company or LLP does not exceed Rs. 25 crore in the previous year relevant to the assessment year for which deduction is claimed under section 80-IAC.

  5. It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.

  6. The above company or LLP is not formed by splitting up, or the reconstruction, of a business already in existence. However, this condition is not applicable in respect of a start-up which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B.

  7. It is not formed by the transfer to a new business of machinery or plant previously used for any purpose [it is subject to a few exception].

  8. 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;

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

2. 100% Deduction of Profit from Eligible Business [Section 80-IAC(1)]:

If the above conditions are satisfied, 100% of the profits and gains derived from eligible business is deductible for 3 consecutive assessment years.

However, this deduction may, at the option of the assessee, be claimed by it for any 3 consecutive assessment years out of 5 years (7 years, from the assessment year 2018-19) beginning from the year in which the eligible start-up is incorporated.

The following points should be noted –

  1. The profits and gains from the eligible business shall be calculated as if such eligible business is the only source of income of the assessee during the previous year relevant for the assessment year in which deduction is claimed for the first time and in the next 2 assessment years.

  2. Books of account should be audited and audit report should be submitted along with the return of income.

  3. If the assessee fails to make a claim of deduction available under this section in its return of income, the same will not be allowed as deduction.

3. Deduction to be allowed for any 3 Consecutive Assessment years out of 5 Years [Section 80-IAC(2)]:

The deduction specified in section 80-IAC(1) may, at the option of the assessee, be claimed by him for any 3 consecutive assessment years out of 5 years beginning from the year in which the eligible start-up is incorporated.

4. Further conditions applicable for an assessee claiming deduction under section 80-IAC [Section 80-IAC(4)]:

The provisions contained in section 80-IA(5) and 80-IA(7) to (12) shall, so far as may be, apply to the eligible business under this section. These provisions relate to the following:—

  1. Audit of accounts [Section 80-IA(7)]:

  2. The deduction under section 80-IA from profits and gains derived from an undertaking shall not be admissible unless the accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by a chartered accountant and the assessee furnishes, alongwith his return of income, the report of such audit in Form No. 10CCB duly signed and verified by such accountant.

  3. Inter-unit transfer of goods or services [Section 80-IA(8)]:

  4. Where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date:

    However, where in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. "Market value" in relation to any goods or service, means the price that such goods or service, would ordinarily fetch on sale in the open market.

  5. Double deduction not allowed [Section 80-IA(9)]:

  6. Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under the heading "deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be.

  7. Restriction of excessive profits [Section 80-IA(10)]:

  8. Where it appears to the Assessing Officer that, owing to the (i) close connection between the assessee carrying on the eligible business to which this section applies and any other person, or (ii) for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as maybe reasonably deemed to have been derived therefrom.

  9. Power of Central Government to notify undertakings to which Section 80-IAB will not apply [Section 80-IA(11)]:

  10. The Central Govt. may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification.

Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]

Related Topics...Deductions from Gross Total Income

  1. DEDUCTIONS UNDER 'CHAPTER VI-A' IN RESPECT OF "PAYMENT & INVESTMENT" ARE ALLOWED FROM SECTION 80C TO 80GGC

    Section 80C Section 80CCC Section 80CCD
    Section 80CCG Section 80D Section 80DD
    Section 80DDB Section 80E Section 80EE
    Section 80G Section 80GG Section 80GGA
  2. DEDUCTIONS UNDER 'CHAPTER VI-A' IN RESPECT OF "INCOMES" ARE ALLOWED FROM SECTION 80-IA TO 80U

    Section 80-IA Section 80-IAB Section 80-IAC
    Section 80-IB Section 80-IBA Section 80-IC
    Section 80-ID Section 80-IE Section 80-JJA
    Section 80-JJAA Section 80-LA Section 80-P
    Section 80-PA Section 80-QQB Section 80-RRB
    Section 80-TTA Section 80-TTB Section 80-U
 

 

 
 
 
 
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