Section 80HHB- Deduction in Respect of Profits and Gains from Projects Outside India

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The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.

As per Section 80HHB,

- If the assessee is an Indian company or a person who is a resident of India, the gross total income of an includes any profits and gains derived from the business-

(a ) the foreign project execution should be undertaken by the assessee in pursuance of a contract entered into by him, or

(b ) the execution of any work undertaken by the assessee and forming part of a foreign project undertaken by any other person in pursuance of a contract entered into by such other person,

with the Government of a foreign State or any statutory or other public authority or agency in a foreign State, or a foreign enterprise, there will, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to—

(i ) 40% thereof for an assessment year beginning on the 1 April 2001;

(ii ) 30% thereof for an assessment year beginning on the 1 April 2002;

(iii ) 20% thereof for an assessment year beginning on the 1 April 2003;

(iv ) 10% thereof for an assessment year beginning on the 1 April 2004,

and no deduction will be allowed in respect of the assessment year beginning on 1 April 2005 and any subsequent assessment year.

Also, the consideration for the execution of such project or, work should be payable in convertible foreign exchange.

- The deduction under this section will be allowed only if the following conditions are satisfied, namely:—

(i ) the assessee has to maintain separate accounts in respect of the profits and gains derived from the business of foreign project execution, or, as the case may be, of the work forming part of the foreign project undertaken by him and, where an assessee is a person other than an Indian company or a co-operative society, such accounts have been audited by an accountant as defined in the Explanation below sub-section (2) of section-288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form 82 and should be duly signed and verified by such accountant ;

(ii ) an amount equal to such percentage of the profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year] is debited to the profit and loss account of the previous year in respect of which the deduction under this section is to be allowed and credited to a reserve account (to be called the "Foreign Projects Reserve Account") to be utilized by the assessee during a period of five years next following for the purposes of his business other than for distribution by way of dividends or profits ;

(iii ) an amount equal to such percentage of the profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year is brought by the assessee in convertible foreign exchange into India, in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, within a period of six months from the end of the previous year referred to in clause (ii).

Also, where the amount credited by the assessee to the Foreign Projects Reserve Account in pursuance of clause (ii) or the amount brought into India by the assessee in pursuance of clause (iii) or each of the said amounts is less than [such percentage of the profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year], the deduction under that sub-section will be limited to the amount so credited in pursuance of clause (ii) or the amount so brought into India in pursuance of clause (iii), whichever is less.

- If at any time before the expiry of five years from the end of the previous year in which the deduction under sub-section (1) is allowed, the assessee utilizes the amount credited to the Foreign Projects Reserve Account for distribution by way of dividends or profits or for any other purpose which is not a purpose of the business of the assessee, the deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed, and the 90[Assessing] Officer may regardless anything contained in this Act, recomputed the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section-154 will, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the money was so utilized.

- Regardless of anything contained in any other provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no part of the consideration or of the income comprised in the consideration payable to the assessee for the execution of a foreign project referred to in clause (a) of sub-section (1) or of any work referred to in clause (b) of that sub-section will qualify for the deduction for any assessment year under any such other provision.]