An amount deposited into ‘Deposit Account’ or ‘Special Account’ for utilization of the same for the specified purpose is allowed as a deduction under section 33AB. Deduction under section 33AB of the Income Tax Act is available to an assessee carrying on business in India of growing and manufacturing tea, coffee or rubber.

The present article briefly explains the provisions governing the deduction so available under section 33AB of the Income Tax Act.

Deduction available under section 33AB of the Income Tax Act

An assessee engaged in growing and manufacturing of tea or coffee or rubber in India is eligible for claiming deduction under section 33AB. Accordingly, for claiming the deduction, the assessee is required to deposit the amount in either of the following specified accounts-

  • Deposit an amount in ‘Special account’ maintained with the National Bank; or
  • Deposit an amount in ‘Deposit account’.

The time period of deposit of amount for claiming deduction under section 33AB

The amount is to be deposited within earlier of the following dates-

  • Before the completion of six months from the end of the previous year; or
  • Before the due date of filing of the income tax return.

Amount of deduction under section 33AB

Lower of the following amount is allowed as a deduction under section 33AB

Withdrawal of the amount deposited in special/ deposit account-

The amount deposited in a special account or deposit account can be withdrawn under the following circumstances only-

  • For the purposes as specified in the scheme,
  • On the closure of the business,
  • On the death of the assessee,
  • On dissolution of the firm or liquidation of the company,
  • On the partition of the Hindu Undivided Family.

Circumstances under which the withdrawal will be deemed to be income and taxed accordingly-

Under the following cases, any amount withdrawn from the deposit/ special account will be charged to income tax under the head ‘Profits and gains of business or profession’-

  • When the amount standing to the credit in a deposit account or special account is utilized for the purchase of-
    • Plant/ machinery which is to be installed in office premises or residential accommodation (including guest house),
    • Office appliances (other than computers).
    • Plant/ machinery, wherein, the actual cost is allowed as a deduction under ‘Profit and gains of business or profession’.
    • Plant/ machinery which is to be installed in an industrial undertaking for the purpose of the business of manufacture, construction or production of any article/ thing specified in the eleventh schedule.
  • When the amount is withdrawn either on the closure of the business or dissolution of the firm.
  • When the amount is withdrawn for an approved specified purpose. However, the whole or part of the amount is not utilized within the end of the relevant previous year.
  • When the asset acquired as per the scheme is sold/ transferred before the expiry of eight years from the end of the previous year in which the asset was acquired. However, sale/ transfer in the following circumstances are exempted-
    • The asset is sold/ transferred to Government or a local authority or a corporation or a Government company; or
    • Sale/ transfer on account of the succession of a firm by a company. Wherein, the applicability of scheme continues with the company.

Some important points- related to Deduction under Section 33AB

  • The deduction under section 33AB is available only if the accounts are audited by the practising chartered accountant before the specified date. The assessee is required to submit the report of audited accounts in Form No. 3AC.
  • The amount utilized for the purpose as specified in the scheme. The same will not be allowed as an expenditure while computing income under the head ‘Profit and gains of business or profession’.

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