Section 138: deduction for profits of industrial undertakings/enterprises in infrastructure development, etc.

Introduction

Section 138 carries forward an eligible infrastructure or other undertaking's Section 80-IA deduction entitlement from the 1961 Act into the 2025 Act. The old provision's eligibility, amount and remaining tax years govern; this is not a fresh deduction window.

Key takeaways

What Section 138 provides

Where, for a tax year, an assessee's gross total income includes profits and gains derived by an undertaking or enterprise from a business referred to in Section 80-IA of the Income-tax Act, 1961, and the assessee is eligible to claim a deduction from those profits under that section (as if the 1961 Act had not been repealed), a deduction is allowed in computing total income, subject to two conditions.

• The amount of the deduction is calculated as per the provisions of Section 80-IA of the Income-tax Act, 1961.
• The deduction is allowed only for such tax years as would have been allowed under Section 80-IA of the Income-tax Act, 1961, had that Act not been repealed.

What this means in practice

Section 138 does not create new eligibility conditions of its own - it is a continuity provision. The scope of eligible businesses, the quantum of deduction, and the number of years for which it can be claimed are all governed by the mechanism of the old, repealed Section 80-IA of the Income-tax Act, 1961, not by fresh conditions in the 2025 Act itself.

Check remaining entitlement

Reconstruct the undertaking's original qualifying year and the years already claimed under Section 80-IA. Deduct only for a tax year that would still have qualified had the 1961 Act continued.

Step-by-step flow for applying Section 138

1. 1

   Does gross total income for the tax year include profits and gains derived by an undertaking or enterprise from a business referred to in section 80-IA of the Income-tax Act, 1961?

   Section 138(a) looks only at profits and gains from the kind of business referred to in section 80-IA of the Income-tax Act, 1961.

   • No: Section 138 does not apply.
   • Yes: Go to the next step.
2. 2

   Would the assessee be eligible for the section 80-IA deduction for this tax year, as if the 1961 Act had not been repealed?

   Section 138(b) imports the old eligibility test. Section 138 itself sets no fresh conditions, so the historic approvals, commencement facts and claim history must support eligibility.

   • Not eligible under the old section: No deduction under this section.
   • Eligible: Go to the next step.
3. 3

   Is this tax year one for which section 80-IA would still have allowed the deduction?

   Condition (ii): the deduction is allowed only for the tax years that would have been allowed under section 80-IA. Count the years already claimed; the 2025 Act does not restart or extend the period.

   • Period already exhausted: No deduction for this or later tax years.
   • Year still within the period: Go to the next step.
4. 4

   Compute the amount as per section 80-IA and claim it

   Condition (i): the amount is calculated as per the provisions of section 80-IA of the 1961 Act, and is deducted from the profits and gains of that business in computing total income.

Practical checklist

Glossary

Grandfathered deduction

Continuation of an existing statutory entitlement into the 2025 Act.

Eligible undertaking

A business that would qualify under the referenced 1961 Act provision for the tax year.

Frequently asked questions