Table of contents
Are you in the business of treating biodegradable business? Here’s how you can claim the deduction of 100% of your income through Section 80JJA.
In the pacing age of technology, different functions of humans are constantly taking a toll on the environment. Almost all parts of the world are experiencing the wrath of neglecting the environment. Moreover, in India, we often hear the news of extreme natural conditions in the form of disasters.
The main solution for such a plight is – a sustainable life, which does not exploit natural resources but uses them judiciously. Biodegradable waste has been unheeded for a long time, but it is used directly or indirectly for several industrial purposes.
These days, many budding businesses in India are taking up this idea to collect and process biodegradable waste. They are offered a special deduction in the income tax payment. Explore the article to learn more about the Section 80JJA and its benefits.
About section 80JJA
Fossils are scarce, and the need for energy is unlimited. It is a wise decision to start replacing fossils with biodegradable waste for energy generation. Biodegradable waste includes waste generated from biotic elements like humans, plants, animals, etc. This waste offers benefits in different forms, such as plant manures, biofuel, biogas, decompose, fertilisers, etc. The government is keen to encourage entrepreneurs to take up such businesses of biodegradable waste usage.
The people operating mainly in collecting, processing, or treating biodegradable waste are incentivised with a deduction of their business income. This deduction is offered under section 80JJA of the Income Tax Act, 1961. The assessee’s income from such business could be deducted from the gross income.
It reduces tax implications. The reduced tax burden encourages more and more entrepreneurs in the country. The main motive behind this incentive is that rather than spending tons on the proper disposal of waste, that waste can be processed and utilised to obtain value from it.
Also, read about: Overview of section 80C deduction and its sub-sections in income tax.
Provisions
- Activities
The section prescribes that biodegradable waste, like human waste, green waste, food waste, etc, should be used for the following activities:
- Generation of power
- Production of biofuel
- Production of organic manure
- Making pellets and briquettes required for the fuel
- Production of biofertilisers
- Production of bio-pesticides and other products.
- Business
The assessee can only claim this deduction if the business is concerned with the collection, treatment, or production of biodegradable waste. Any activity from a given list should be the central business. Any company dealing as an agency or retailer for the products of the main business is not classified under this category and thus cannot avail of the deduction.
- Deduction
Section 80JJA offers the facility for deducting the total income generated from the business. The income deducted should be under the head of ‘Profit and gains from business or profession’. After the calculation of the total gross income of the taxpayer, this deduction of 100% of the income from the biodegradable business can be claimed.
- Period
The assessee can claim the deduction for 5 consecutive years from the assessment year (AY) in which the business has started. This period of claiming deduction can not be exceeded after five years. Let’s understand the deduction period of section 80JJA example:
Ms Manya starts a business of manufacturing the biofertilisers in the AY 2021-2022. She can claim the deduction under section 80JJA for the five years until AY 2025-2026. After AY 2025-2026, she cannot claim the deduction.
- Documents
To claim this deduction, the assessee should furnish the required documents stating that the main income is gained from such business of biodegradable waste. Proof of business activity, income, and other compliances should be furnished while filing the income tax return (ITR).
Must read: How to do tax planning for high-income earners?
Bottomline
Rural Indians have used biodegradable waste for a long time to make manure, fertilisers, and other by-products for their farms. Modern times require more application of such methods to save human life from energy and fuel crises in the future. Moreover, the efforts of the government to incentivise these activities through businesses are remarkable.
Businesses with activities mentioned under section 80JJA can claim the deduction of total income for five consecutive years. This incentive provides an excellent opportunity for young entrepreneurs to grow in such an out-of-box business idea.
Read more about: Corporate social responsibility – What, why and how?
FAQ
This section is crucial for businesses with heavy human resources. It offers a deduction of 30% for the additional staff cost incurred by the businesses. It can be claimed on the income under the head of ‘profit and gains from the business or profession’. When a company hires additional employees, and their income exceeds the specified limits, then the company can claim a deduction under section 80JJAA.
The section 80J offers deductions to businesses which are newly set up. These businesses can be small-scale enterprises of industrial products, processes, ships, or hotels. Profit and gain from such business are exempted from payment of income tax for five years from the start if their profits are a certain % of their assets for the respective year. The benefit cannot extend for more than five years.
Section 80IA provides a deduction for the incomes generated from the businesses in some specific sectors, such as power and infrastructure. These sectors are ancillary to all other industries, and they play a crucial role in the overall economic growth of a company. The section provides a 100% deduction for the ten out of fifteen years from the commencement of these businesses. The businesses availing this benefit should be incorporated in India only.
Individual taxpayers can claim the deduction of income received from the royalties, copyrights, patents, etc, under section 80RRB. The person claiming this deduction should be a resident of India. The individual can claim the lease of – total royalty income, ₹3 lakh, gross royalties on patents. The section excludes companies. The patent from which a royalty is gained should be registered under the Patents Act of 1970.
Several deductions, which can be claimed under the old tax regime, are cancelled under the new tax regime. The tax slab limits are raised, but the deductions are removed. However, some deductions can be availed are:
Standard deduction – ₹50,000 for salaried individuals and ₹15000 for family pensioners.
NPS contribution of employees, till ₹7.5 lakh – Section 80CCD
Contribution to ‘Agniveer’ fund.