Section 80JJA of Income Tax Act

If used efficiently, biodegradable resources can help reduce different types of pollution and bring ecological balance. Section 80JJA of the Income Tax Act provides tax deductions to businesses that have earned gains or profit through efficiently using biodegradable waste. To avail of the 80JJA deduction benefit, the assessee or the business’s gross income should include gains or profit from the collection and processing of biodegradable waste. 

Here is a brief description of Section 80JJA of the Income Tax Act, including its details, inclusions, and exclusions. 

What is 80JJA of the Income Tax Act?

A business with a profit or gain component from the collection, processing and treatment of biodegradable waste materials to produce biogas, generate power, or generate fuel or organic manure through briquettes or pellets (made by the business). If income from such means of business is included in assessing a business’s gross total income, then the business can be eligible for an 80JJA deduction. 

When was the Section 80JJA introduced?

Section 80JJA of the Income Tax Act was introduced by the Government of India (GoI) on 1st April 1999. This act was seen as a significant step towards environmental protection and was introduced after Section 80JJ. 

What is Section 80JJA deduction?

For the above-mentioned income, the business can avail of a tax deduction equal to such income or ₹5 lacs, whichever is less. 

When can a business claim an 80JJA deduction?

A business eligible to avail of this deduction can claim it for a five consecutive years period, with relevant business assessment years when the eligibility was qualified. 

What are the key provisions under Section 80JJA of the Income Tax Act? 

The key provisions of Section 80JJA of the Income Tax Act include the following:

1. Gains from biodegradable business: Section 80JJA of the Income Tax Act provides benefits to businesses that have a component of gains from biodegradable waste utilisation in their books of account. This section allows for a tax deduction of profits that are derived through the collection and processing of biodegradable waste or through biodegradable waste treatment. Efficient use of organic manure or biodegradable fuels for the generation of energy and generation of bio fertilisers and biopesticides can also be considered eligible for the 80JJA deduction benefit. 
2. Gross total income: This income generated through the collection, treatment or processing of biodegradable waste should be a part of the assessee’s (business) gross total income. Without this, the business may not be able to avail of the Section 80JJA Income Tax Act benefit on their business gains. 
3. Assessment years to be considered: Section 80JJA entitles the business to earn through biodegradable waste collection, processing, and treatment for five consecutive assessment years. This period of five consecutive assessment years would start from the assessment year in which the assessee’s business had commenced. 
4. Limitation on income for deduction: The 80JJA deduction is only applicable to the assessee’s total income. Other aspects of their business income, such as a specific business component or section in isolation, are not eligible under the Section 80JJA benefit. 
5. Limitation on kind of business: The tax deduction under Section 80JJA is applicable for income through the collection, processing and treatment of biodegradable waste. This tax deduction is not applicable to other business types.  
6. Proof of eligible businesses: Since only businesses earning through the collection, processing, and treatment of biodegradable waste are considered, there would be specific proof required for the same. Subject to certain provisions, it requires proof of eligible business activity and proof of income earned through such activity. 
7. Extension for assessment years: The assessee can claim the 80JJA deduction only for a period of five consecutive years. This tax deduction cannot be extended or carried forward for further assessment years. 
8. Necessary documents and evidence to be furnished: As mentioned in point number six above, the tax deduction benefit is only eligible for specific business activities. Therefore, the business is mandated to furnish necessary documents and provide evidence about the eligible business activities. The business also needs to show proof of expenses incurred on eligible business activities for which the profit was earned.

Conclusion

Section 80JJA is a hallmark act that aims to support the effective utilisation of biodegradable waste in India. It does this by incentivising businesses with tax deductions equal to the eligible business income or value up to ₹ five lacs. Thus, Section 80JJA serves the goal of building an ecologically sustainable future.