Section 80-LA of Income Tax Act
Section 80LA Deduction – Income Tax
Section 80LA of the Income Tax Act provides the basis for income tax deductions relating to certain incomes of Offshore Banking Units or International Financial Services centres. In this article, we discuss Section 80LA deduction of the Income Tax Act briefly.
Offshore Banking Units
As per the definition given by the RBI, an offshore banking unit is a branch of an Indian bank located in Special Economic Zone (SEZ) with a special set-off rule aimed at facilitating exports from the region. In India, offshore bank unit is a virtual foreign bank branch of an Indian bank but located in India. Offshore banking units are usually involved in international banking business that involves foreign currency denominated assets and liabilities.
International Financial Services Centre
International Financial Services Centres are treated as a non-resident under RBI regulations. International Financial Services Centres are set-up to undertake financial services transactions that are currently carried on outside India by overseas financial institutions and overseas branches/subsidiaries of Indian financial institutions. International Financial Services Centres usually deal with the flow of finance, financial products and services across borders.
In accordance with provisions of this section 80LA, an assessee being a scheduled bank or owing an offshore banking will be allowed deduction under Section 80LA. The deduction allowable for such income will be 100% of the income derived for 5 consecutive years beginning with the assessment year relevant to the financial year and 50% of income for next five consecutive assessment years. The eligibility will begin from the date on which the permission was obtained under following Acts:
- Banking Regulation Act, 1949
- Securities & Exchange Board of India Act, 1992
- Any other relevant law
Income under Section 80LA
The deduction will be allowed for the following incomes, to the extent the incomes are included in the gross total income of assessee:
- Income from offshore banking units in a Special Economic Zone
- Income from the business, referred to section 6 (1) of the Banking Regulation Act, 1949
- Income from an undertaking located in a special economic zone
- Income from any other undertaking which develops, operates and maintains a special economic zone
- The income from business of any Unit of the International Financial Services Centre