Section 80IAC of the Income Tax Act, 1961 is an important provision for startups and small businesses looking to avail tax benefits. As per the section, a person is eligible for a deduction for profits for any one assessment year out of 10 assessment years. This deduction is available if the profits are derived from an eligible business. In the current assessment year 2023-24, the maximum amount of deduction that can be claimed under the section is Rs.7 lakh. It is important to understand this section in detail to understand its implications and benefits.
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History of Section 80IAC
The section was first introduced in the budget of April 1, 2000 as part of the Taxation Laws (Amendment) Act, 2000 and has been amended several times since then. The section aims to promote entrepreneurship among small and medium enterprises. The recent amendment to the section was made in the Budget 2021 to extend the benefit to the FY 2021-22 and AY 2022-23.
Applicability of Section 80IAC
The deduction is applicable to not just companies but also registered partnerships, sole proprietorships and cooperative societies as long as each entity fulfils the specified requirements for it to qualify as an eligible business as per the section.
The section also provides certain conditions that would make the profit from the business eligible for deduction and rules that set out the circumstances in which profits from the business are not eligible for deduction.
Circumstances in which Income from eligible business not eligible for deduction under Section 80IAC
The section states that the income from any eligible business is not eligible for deductions in the following circumstances:
1. Income derived from any industrial undertaking set up by the assessee after 31st March, 2021
2. Profits of a unit established in a SEZ set up after 01 April 2021 (as per Circular 2/2020/F. No. 37/2019, dated 23 December 2020).
3. Income derived from any eligible business set up through the mergers and acquisitions after March 2021.
4. Income earned from activity which is declared as not being eligible for deduction.
Conditions for eligible business under Section 80IAC
1. The business must be set up and registered before 31st March 2021.
2. The business must be set up and operated in India.
3. The assessee must be a resident of India.
4. There must be an agreement in place between the eligible business and the assessee.
5. The eligible business must be engaged in eligible activities as specified under the section.
6. The assessee must file the return of income for each of the assessment years for which the deduction has been claimed.
Benefits of Section 80IAC
Under section 80IAC of the Income Tax Act, 1961, an eligible business is eligible for a maximum deduction of Rs. 7 lakh for any one assessment year out of 10 assessment years. Thus an assessee can save a significant amount on taxes if it qualifies for the deduction. This deduction is available irrespective of the profits or losses earned by the eligible business and can be used in case of losses as well.
Conclusion
Section 80IAC of the Income Tax Act, 1961 is an important section for small and medium enterprises as it provides a deduction of up to Rs. 7 lakh for any one assessment year out of 10 assessment years. For businesses to avail this deduction, they must satisfy the specified conditions and must not be engaged in the activities mentioned in the section. This deduction can result in significant savings of taxes for the assessee. Thus, it is important to understand the provisions of the section in order to avail the benefits.
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