Understanding the Benefits of Section 80-IA(2)(iv)(b) of Income Tax Act 1961 for Industrially Backward States and Union Territories in the Eighth Schedule List

Introduction

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Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.

India is a developing country that has made significant strides in various sectors of the economy. However, despite its growth, there are still certain regions in the country that are economically backward and require special attention. The government has recognized this and has implemented various policies to uplift these regions. One such policy is the Eighth Schedule List of Industrially Backward States and Union Territories under Section 80-IA(2)(iv)(b) of Income Tax Act 1961.

This provision aims to encourage industries to invest in these economically backward regions by providing tax benefits. In this blog, we will discuss the eligibility criteria and benefits of this provision in detail.

Eligibility Criteria

To avail of the benefits of Section 80-IA(2)(iv)(b), a company must fulfill certain eligibility criteria. These criteria are as follows:

1. The company must be engaged in the business of developing, maintaining, and operating an industrial park or special economic zone (SEZ) in the industrially backward state or union territory listed in the Eighth Schedule.

2. The company must have obtained the necessary approvals and clearances from the relevant authorities.

3. The company must commence its operations before March 31, 2023.

4. The company must not have claimed any deductions or benefits under any other provisions of the Income Tax Act for the same assessment year.

If a company fulfills all the above criteria, it can avail of the benefits under Section 80-IA(2)(iv)(b).

Benefits of Section 80-IA(2)(iv)(b)

The benefits of Section 80-IA(2)(iv)(b) are significant for companies operating in the industrially backward states and union territories listed in the Eighth Schedule. Let’s take a look at some of these benefits:

1. Tax Holiday: Companies can avail of a tax holiday for any five consecutive assessment years out of the first eight years of operation. This means that the company will not have to pay any income tax on its profits for the specified years.

2. Deduction of Profits: After the tax holiday period, the company can deduct 50% of its profits for the next five assessment years.

3. Carry Forward of Losses: The losses incurred during the tax holiday period can be carried forward and set off against the profits of the next 15 years.

4. No Minimum Alternate Tax (MAT): Companies operating in industrially backward states and union territories listed in the Eighth Schedule are exempted from paying Minimum Alternate Tax (MAT).

These benefits are a significant incentive for companies to invest in these regions and contribute to their development.

FAQs

1. What is the Eighth Schedule List of Industrially Backward States and Union Territories? The Eighth Schedule List is a list of states and union territories that are considered economically backward and require special attention. Companies investing in these regions can avail of tax benefits under Section 80-IA(2)(iv)(b).

2. What is the eligibility criteria for availing of benefits under Section 80-IA(2)(iv)(b)? To avail of the benefits under Section 80-IA(2)(iv)(b), a company must be engaged in the business of developing, maintaining, and operating an industrial park or special economic zone (SEZ)

   in the industrially backward state or union territory listed in the Eighth Schedule. The company must have obtained the necessary approvals and clearances from the relevant authorities, commence its operations before March 31, 2023, and not have claimed any deductions or benefits under any other provisions of the Income Tax Act for the same assessment year.

   3. What is a tax holiday? A tax holiday is a period during which a company is exempted from paying income tax on its profits. Under Section 80-IA(2)(iv)(b), companies can avail of a tax holiday for any five consecutive assessment years out of the first eight years of operation.

   4. What is Minimum Alternate Tax (MAT)? Minimum Alternate Tax (MAT) is a tax that companies must pay if their tax liability is lower than a certain percentage of their book profits. Companies operating in industrially backward states and union territories listed in the Eighth Schedule are exempted from paying MAT.

   5. Can losses be carried forward under Section 80-IA(2)(iv)(b)? Yes, companies can carry forward the losses incurred during the tax holiday period and set them off against the profits of the next 15 years.

   Conclusion

   The Eighth Schedule List of Industrially Backward States and Union Territories under Section 80-IA(2)(iv)(b) of Income Tax Act 1961 is a significant step towards promoting economic growth in underdeveloped regions of India. The tax benefits provided by this provision are a significant incentive for companies to invest in these regions and contribute to their development.

   By investing in these regions, companies not only help create employment opportunities but also boost the local economy. The tax benefits provided by Section 80-IA(2)(iv)(b) are an excellent opportunity for companies looking to expand their operations and contribute to the development of economically backward regions in India.

   In conclusion, we can say that the government’s efforts to uplift economically backward regions are commendable, and Section 80-IA(2)(iv)(b) is a step in the right direction. We hope that more companies will take advantage of this provision and invest in these regions to help accelerate their development.