Income Tax Act

Official PDF pages 206–210

SOURCE PDF PAGE 206
profits and gains derived from business, a deduction of an amount equal to 30%
of additional employee cost incurred in the course of such business in the tax year
shall be allowed.
(2) The deduction referred to in sub-section (1) shall be allowed for three consec -
utive tax years, beginning from the tax year in which the employment is provided.
(3) The deduction under sub-section (1) shall not be allowed, if—
( a )   the business is formed by splitting up, or the reconstruction, of an existing
business; or
( b )   the business is acquired by the assessee through transfer from any other
person or as a result of any business reorganisation; or
( c )   the assessee does not furnish the report of an accountant, before the
specified date as referred to in section 63, giving the particulars in the
report, as may be prescribed.
(4) The condition   referred to in sub-section (3)( a ) shall not apply in respect of an
undertaking which is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of any such undertaking as is referred to in
section 140(4), in the circumstances and within the period specified in said section.
(5) For the purposes of this section,—
( a )   “additional employee cost” means—
( i )   the total emoluments paid or payable to additional employees
employed during the tax year; or
( ii )   emoluments paid or payable to employees employed during the tax
year, where that year is the first year of a new business,
and it shall be   nil   in the case of an existing business, if—
( A )   there is no increase in the number of employees from the total
number employed as on the last day of the preceding tax year; or
( B )   emoluments are paid otherwise than by an account payee cheque
or account payee bank draft or by use of electronic clearing system
through a bank account or through such other electronic mode, as
may be prescribed;
( b )   “additional employee” means an employee who has been employed dur -
ing the tax year and whose employment increases the total number of
employees employed by the employer as on the last day of the preceding
tax year, but does not include any employee—
( i )   whose total emoluments exceed   `   25000 per month;
( ii )   for whom the Government pays the entire contribution under the
Employees’ Pension Scheme notified as per the provisions of the
Employees’ Provident Funds and Miscellaneous Provisions Act,
1952 (19 of 1952);
( iii )   employed for less than one hundred and fifty days in case of an
assessee who is engaged in the business of manufacturing of
apparel or footwear or leather products, except where such
employee is employed for said number of days in the immediately

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succeeding tax year, he shall be deemed as an additional employee
of the succeeding tax year and the provisions of this section shall
apply accordingly;
( iv )   employed for less than two hundred and forty days during the tax
year in case of any other assessee, except where such employee is
employed for said number of days in the immediately succeeding
tax year, he shall be deemed as an additional employee of the
succeeding tax year and the provisions of this section shall apply
accordingly; and
( v )   who does not participate in a recognised provident fund;
( c )   “emoluments” means any sum paid or payable to an employee   in lieu   of
his employment, by whatever name called, but does not include—
( i )   employer contributions paid or payable to any pension or provident
fund or any other fund for the benefit of the employee as mandated
by any law; and
( ii )   lump sum payments paid or payable to an employee at the time
of termination of his service, superannuation, or voluntary retire -
ment, such as gratuity, severance pay, leave encashment, voluntary
retrenchment benefits, commutation of pension and the like.
Deductions for income of Offshore Banking Units and Units of International
Financial Services Centre.
147.   (1) Where the following assessee has any income of the nature referred to
in sub-section (3), there shall be allowed a deduction equal to 100% of such
income:—
( a )   a scheduled bank, or a bank incorporated under the laws of a country
outside India, and having an Offshore Banking Unit in a Special Economic
Zone; or
( b )   a unit of an International Financial Services Centre.
13
[ (2)   Irrespective of anything contained in section 80LA of the Income-tax Act, 1961
(43 of 1961), the deduction shall be allowed,—
( a )   for an entity mentioned in sub-section (1)( a ),—
( i )   for twenty consecutive tax years beginning from the relevant tax year;
and
( ii )   in a case, where the tenth year, out of the period of ten consecutive
years of deduction allowed under section 80LA(1) of the said Act has
ended on the 31st March, 2025, for further ten consecutive years from
13.   Substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its substitution, sub-section
(2) read as under :
“(2) The deduction shall be allowed—
( a )   for ten consecutive tax years beginning from the relevant tax year in the case of an
entity mentioned in sub-section (1)( a );
( b )   for ten consecutive tax years out of fifteen years beginning from the relevant tax
year, at the option of an assessee, in the case of an entity mentioned in sub-section
(1)( b ).”

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the tax year beginning on the 1st April, 2026; and
( b )   in the case of an entity mentioned in sub-section (1)( b ), for twenty conse-
cutive tax years out of twenty-five years beginning from the relevant tax
year, at the option of an assessee. ]
(3) The income referred to in sub-section (1) shall be the income from—
( a )   an Offshore Banking Unit located in a Special Economic Zone; or
( b )   the business activities referred to in section 6(1) of the Banking Regu -
lation Act, 1949 (10 of 1949), with undertakings in a Special Economic
Zone or entities that develop, develop and operate, or develop, operate
and maintain Special Economic Zone; or
( c )   the approved business activities of any Unit of an International Financial
Services Centre set up in a Special Economic Zone; or
( d )   transfer of an asset being, an aircraft or a ship, leased by a unit referred
to in clause ( c ) if such unit commenced its business operations by 31st
March, 2030.
(4) The deduction under this section shall be allowed only if the assessee submits
along with the return of income—
( a )   a report in the form as may be prescribed, from an accountant certifying
the correctness of claim of deduction; and
( b )   a copy of the—
( i )   permission obtained under section 23(1)( a ) of the Banking Regu -
lation Act, 1949 (10 of 1949); or
( ii )   permission or registration obtained under the International Finan -
cial Services Centres Authority Act, 2019 (50 of 2019).
14
[ (5) In respect of any Offshore Banking Unit or any other unit referred in sub-sec -
tion (1), commencing operations on or after the 1st April, 2026, the deduction under
14.   Sub-sections (5) and (6) substituted for sub-section (5) by the Finance Act, 2026, w.e.f.
1-4-2026 . Prior to its substitution, sub-section (5) read as under :
‘(5) For the purposes of this section,—
( a )   “relevant tax year” shall be,—
( i )   in case of an entity mentioned in sub-section (1)( a ), the tax year in which
permission under section 23(1)( a ) of the Banking Regulation Act, 1949 (10
of 1949), or permission or registration under the Securities and Exchange
Board of India Act, 1992 (15 of 1992) or any other relevant law was obtained;
or
( ii )   in case of an entity mentioned in sub-section (1)( b ), the tax year in which
permission under section 23(1)( a ) of the Banking Regulation Act, 1949 (10
of 1949), or permission or registration under the Securities and Exchange
Board of India Act, 1992 (15 of 1992), or permission or registration under
the International Financial Services Centres Authority Act, 2019 (50 of 2019)
was obtained;
( b )   “Unit” shall have the same meaning as assigned to it in section 2( zc ) of the Special
Economic Zones Act, 2005 (28 of 2005) ;
( c )   “aircraft” and “ship” shall have the meanings respectively assigned to them in
Schedule VI (Note 3).’

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sub-section (1) shall be available only if such unit is not formed by splitting up or
reconstruction or reorganisation or transfer of a business already in existence in India.
(6) For the purposes of this section,—
( a )   “relevant tax year” shall be,—
( i )   in case of an entity referred to in sub-section (1)( a ), the tax year in
which permission under section 23(1)( a ) of the Banking Regula -
tion Act, 1949 (10 of 1949), or permission or registration under the
Securities and Exchange Board of India Act, 1992 (15 of 1992) or
any other relevant law in force was obtained; or
( ii )   in case of an entity referred to in sub-section (1)( b ), the tax year in
which permission under section 23(1)( a ) of the Banking Regula -
tion Act, 1949 (10 of 1949), or permission or registration under the
Securities and Exchange Board of India Act, 1992 (15 of 1992), or
permission or registration under the International Financial Services
Centres Authority Act, 2019 (50 of 2019) was obtained;
( b )   “Unit” shall have the same meaning as assigned to it in section 2( zc ) of the
Special Economic Zones Act, 2005 (28 of 2005);
( c )   “aircraft” and “ship” shall have the meanings respectively assigned to them
in Schedule VI (Note 3). ]
Deduction in respect of certain inter-corporate dividends.
148.   (1) If the gross total income of a domestic company in any tax year includes
any income by way of dividends from—
( a )   any other domestic company; or
( b )   a foreign company; or
( c )   a business trust,
such domestic company shall be allowed a deduction of an amount equal to so much
of the income by way of dividends received from the person mentioned in clause
( a ) or ( b ) or ( c ) as does not exceed the amount of dividend distributed by it at least
one month before the due date for filing the return of income under section 263(1).
(2) Where any deduction, in respect of the amount of dividend distributed by the
domestic company, has been allowed under sub-section (1) in any tax year, no
deduction shall be allowed in respect of such amount in any other tax year.
Deduction in respect of income of co-operative societies.
149.   (1) If the gross total income of an assessee, being a co-operative society,
includes any income referred to in sub-section (2), the sums specified in
the said sub-section shall, in accordance with and subject to the provisions of this
section, be allowed as deduction in computing the total income of such assessee.
(2) The sums referred to in sub-section (1) shall be the following:—
( a )   in the case of a co-operative society engaged in—
( i )   carrying on the business of banking or providing credit facilities
to its members; or

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( ii )   a cottage industry; or
( iii )   the marketing of agricultural produce grown by its members; or
( iv )   the purchase of agricultural implements, seeds, livestock or other
articles intended for agriculture for the purpose of supplying them
to its members; or
( v )   the processing, without the aid of power, of the agricultural produce
of its members; or
( vi )   the collective disposal of the labour of its members; or
( vii )   fishing or allied activities, that is to say, the catching, curing, pro -
cessing, preserving, storing or marketing of fish or the purchase of
materials and equipment in connection therewith for the purpose
of supplying them to its members,
the whole of the amount of profits and gains of business attributable to
any one or more of such activities;
( b )   in the case of a co-operative society, being a primary society engaged in
supplying milk, oilseeds,  
15
[ cotton seed, cattle feed, ]   fruits, or vegetables
raised or grown by its members to—
( i )   a federal co-operative society, being a society, engaged in the busi -
ness of supplying milk, oilseeds,  
15
[ cotton seed, cattle feed, ]   fruits
or vegetables; or
( ii )   the Government or a local authority; or
( iii )   a Government company, as defined in section 2( 45 ) of the
Companies Act, 2013 (18 of 2013), or a corporation established by
or under a Central Act or State Act or Provincial Act, engaged in
supplying milk, oilseeds,  
15
[ cotton seed, cattle feed, ]   fruits or vege -
tables, as the case may be, to the public,
the whole of the amount of profits and gains of such business;
( c )   in the case of a co-operative society engaged in activities other than those
specified in clause ( a ) or ( b ), (either independently of, or in addition to,
all or any of the activities so specified), that amount of profits and gains
attributable to such activities as does not exceed—
( i )   `   100000, if the society is a consumers’ co-operative society; and
( ii )   `   50000, in any other case;
16
[ ( d )   in respect of any income derived by the co-operative society from its invest -
ments with any other co-operative society by way of—
15.   Inserted by the Finance Act, 2026, w.e.f.   1-4-2026 .
16.   Substituted by the Finance Act, 2026, w.e.f.   1-4-2026 . Prior to its substitution, clause ( d )
read as under :
“( d )   in respect of any income by way of interest or dividends derived by the co-operative
society from its investments with any other co-operative society, the whole of such
income;”