Chapter VIII - Deductions to be Made in Computing Total Income
Section 145
Section 145: deduction for collecting and processing biodegradable waste
Section 145 rewards businesses in the waste-to-value chain: if your gross total income includes profits from collecting and processing or treating biodegradable waste for one of four specified end-uses, you can deduct the whole of those profits for five consecutive tax years starting from the year the business commences.
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Need advice on Section 145?
This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
If the gross total income of an assessee includes any profits and gains derived from the business of collecting and processing or treating of bio-degradable waste for,— (a) generating power; or (b) producing bio-fertilizers, bio-pesticides or other biological agents; or (c) producing bio-gas; or (d) making pellets or briquettes for fuel or organic manure, there shall be allowed a deduction equal to the whole amount of such profits and gains for five consecutive tax years, beginning with the tax year in which such business commences.
Introduction
Section 145 allows a five-year deduction of the whole profit from a qualifying biodegradable-waste collection and processing or treatment business. The outputs must fall within the statute's listed power, biological-agent, biogas or fuel/manure categories.
Key takeaways
Bio-degradable waste business
An eligible business collecting and processing or treating bio-degradable waste for the listed energy, biological-agent or fuel products may deduct the whole of its resulting profits and gains.
Five-year period
The deduction runs for five consecutive tax years beginning with the year that business commences.
What the deduction gives you
If the gross total income of an assessee includes profits and gains derived from the business of collecting and processing or treating biodegradable waste for any of the following purposes, a deduction equal to the whole amount of such profits and gains is allowed for five consecutive tax years, beginning with the tax year in which the business commences:
- Generating power
- Producing bio-fertilizers, bio-pesticides or other biological agents
- Producing bio-gas
- Making pellets or briquettes for fuel or organic manure
Start and end of the window
The five consecutive tax years begin with the tax year in which the qualifying business commences. Keep a separate record of that date and the profits derived from the eligible activity.
Link profit to eligible activity
The deduction is for profits derived from collecting and processing or treating biodegradable waste for the listed purposes, not all income of an assessee that happens to operate such a business.
Step-by-step flow for applying Section 145
- 1
Does the business collect and process or treat bio-degradable waste?
- No: Section 145 does not apply.
- Yes: Go to the next step.
- 2
Is it for one of the four listed purposes?
Generating power; producing bio-fertilizers, bio-pesticides or other biological agents; producing bio-gas; or making pellets or briquettes for fuel or organic manure.
- No: No deduction under Section 145.
- Yes: Go to the next step.
- 3
Is the tax year within the five consecutive years beginning with the year the business commenced?
- No: No deduction for this tax year.
- Yes: Go to the next step.
- 4
Deduct the whole amount of the profits derived from that business
Only profits derived from the qualifying waste business are deducted; other income remains in total income.
Practical checklist
Do
- Record the commencement tax year and eligible output produced from the waste.
- Maintain accounts that identify profits derived from the qualifying activity.
Avoid
- Do not extend the deduction beyond five consecutive tax years.
- Do not include unrelated business profit in the eligible amount.
Illustrative example
Worked example: a bio-gas plant with a side trading business
Hypothetical facts (illustration only, not a real taxpayer): A firm starts collecting kitchen and market waste and processing it into bio-gas in Year 1 (the tax year the business commences). It also runs an unrelated trading business. In Year 2, its gross total income is ₹50 lakh: ₹38 lakh from the bio-gas business and ₹12 lakh from trading (assumed figures).
Qualifying activity
Collecting and processing bio-degradable waste for producing bio-gas is a listed purpose.
Within the window
Year 2 falls within the five consecutive years beginning with Year 1 (Years 1 to 5).
Deduction
The whole of the ₹38 lakh bio-gas profit is deductible; the ₹12 lakh trading profit is not.
Result for Year 2
₹50 lakh - ₹38 lakh = ₹12 lakh remains, before any other deductions.
Outcome
- For Year 2 the Section 145 deduction is ₹38 lakh.
- From Year 6 onwards the bio-gas profits are fully taxable under the normal provisions, as the five-year window has ended.
Glossary
- Bio-degradable waste
- Waste processed or treated in the qualifying business described in the section.
- Consecutive tax years
- An uninterrupted five-year deduction period starting with the commencement year.
Frequently asked questions
How much of the profit can be deducted under Section 145?
The whole amount of the profits and gains derived from the qualifying biodegradable-waste business - a 100% deduction.
For how many years can this deduction be claimed?
For five consecutive tax years, beginning with the tax year in which the business commences.
What end-uses qualify?
Collecting and processing or treating biodegradable waste for generating power, producing bio-fertilizers/bio-pesticides/other biological agents, producing bio-gas, or making pellets or briquettes for fuel or organic manure.
Need help applying this provision to your situation?
Talk to our tax team about this deductionLast updated 9 October 2026