CBDT APERC Exemption 2026: AYs 2020-21 to 2024-25 Corrected

What Happened?

The Central Board of Direct Taxes (CBDT) has issued Notification 140/2026 to correct an important clarification regarding the exemption period granted to Andhra Pradesh Eastern Region Catchment (APERC) entities. The notification corrects the English version of Notification 24/2019 to explicitly state that the exemption period is limited to Assessment Years 2020-21, 2021-22, 2022-23, 2023-24, and 2024-25. This means businesses operating under APERC classification must now ensure their tax planning aligns with this corrected window.

Background & Legal Context

To understand this correction, we need to examine the relevant legal framework:

• Section 10(15) of Income Tax Act, 2025: This section governs exemptions for entities engaged in specific infrastructure and power generation activities. While the Income Tax Act 2025 has been recently codified, exemptions relating to power sector entities continue to be governed by notifications issued by the CBDT under the delegation of authority.
• Notification 24/2019 (Original Issuance): This notification was originally issued to provide income tax exemptions to APERC-related entities as part of the government's policy to encourage power generation and distribution in the Andhra Pradesh Eastern Region. The exemption was structured as a tax incentive for a specific period.
• CBDT Notification 140/2026 (Recent Correction): The new notification clarifies that there was ambiguity in the English version of the original notification regarding the exact assessment years covered. The correction now makes it crystal clear that the exemption applies only to AYs 2020-21 through 2024-25, and no beyond.
• Why This Matters Legally: In tax law, the assessment year (AY) determines the financial year to which the income relates and the year in which the return of income must be filed. Any ambiguity in the AY coverage directly impacts whether an entity qualifies for exemption or faces taxation. This correction ensures uniform interpretation across all tax offices and reduces litigation risks.

Section 115 of Income Tax Act, 2025 also applies to entities claiming exemptions, as it deals with special provisions for various categories of entities. Businesses must ensure they fall within the exact definitions and periods specified in the notification.

What Does This Mean for You?

For Power Sector Entities & APERC Operators:

• Clear Cutoff Dates: If you are an APERC-related entity, your exemption eligibility is now clearly defined. You can claim exemption for AY 2020-21 to AY 2024-25 only. For AY 2025-26 onwards, you cannot claim exemption under this notification unless a fresh notification extends it.
• Revision & Amendment Planning: If you have filed returns for AYs 2020-21 to 2024-25 claiming exemption, this notification now provides official CBDT clarity that your claim is correct. However, if you filed returns for AY 2025-26 claiming APERC exemption, you may need to amend your return to remove that claim.
• Reassessment & Scrutiny Risk Reduction: This official clarification significantly reduces the risk of Income Tax Department raising queries during scrutiny or reassessment proceedings. Tax officers cannot now take a different interpretation of the exemption period.
• Documentation & Compliance: Ensure your books of accounts, tax returns, and supporting documents clearly show that you are claiming exemption for the correct AYs only. Maintain certified copies of Notification 24/2019 and Notification 140/2026 in your records.
• Post-2024-25 Strategy: Entities that were relying on this exemption must now start planning for taxation in AY 2025-26 and beyond. You should consider other available exemptions, deductions, or incentives under the Income Tax Act, 2025 or other schemes like Production Linked Incentive (PLI) if applicable.
• Linked Provisions: Check if other CBDT notifications or the Finance Act 2025-26 provisions allow any continuation or extension of this exemption. Some sectors have received extended timelines; review your sector-specific policies.

For Tax Professionals & Audit Firms:

• Conduct an audit of client records to identify all entities claiming APERC exemption.
• Reconcile claimed exemption periods with the now-corrected AY 2020-21 to 2024-25 window.
• Advise clients on amendments if necessary, particularly for AY 2025-26 onwards filings.

What Should You Do Now?

Immediate Actions (Next 30 Days):

• Review Your Return Filings: Check all returns filed for AYs 2020-21 to 2024-25 to confirm that your exemption claim is aligned with APERC classification and Notification 24/2019. If you mistakenly filed without claiming exemption, you can file a belated or revised return if the time limit permits.
• Audit Your AY 2025-26 Filing: If you have already filed your return for AY 2025-26 (relating to FY 2024-25), ensure you have not claimed APERC exemption. If you have, amend your return immediately using Form ITR-U to avoid notice from the Income Tax Department.
• Document Retention: Obtain certified copies of both Notification 24/2019 and Notification 140/2026 from the official CBDT website or your tax professional. Attach these to your records and tax file for future reference during audits or scrutiny.
• Communicate with Your Auditors: If you use a chartered accountant or tax audit firm, share this notification and ask them to conduct a compliance check on your past filings.

Medium-Term Actions (Within 3 Months):

• Financial Planning for AY 2025-26: Since exemption is no longer available from AY 2025-26, work with your tax advisor to plan for taxation on your APERC-related income. This may involve reviewing your corporate structure, timing of income recognition, or eligibility for other incentives.
• Check for Alternative Schemes: Explore whether your business qualifies for other exemptions or incentives under sections like Section 80-IA (Infrastructure), Section 80-IB (Undertaking), or state-level incentives in Andhra Pradesh.
• Provisional Tax Planning: If your business model changes significantly post-2024-25, you may need to plan for higher tax outflows in FY 2025-26. Build tax reserves accordingly.

Key Takeaways

• Notification 140/2026 provides official CBDT clarity: APERC exemption under Notification 24/2019 applies to Assessment Years 2020-21, 2021-22, 2022-23, 2023-24, and 2024-25 only. No ambiguity remains.
• AY 2025-26 onwards is taxable: Entities cannot claim exemption from AY 2025-26 unless a new notification or extension is issued by CBDT. Begin tax planning for normal taxation immediately.
• Reduced litigation risk: This official clarification from CBDT significantly reduces chances of departmental disputes or reassessment notices challenging your exemption claim for the specified AYs.
• Amendment may be necessary: If you have filed returns for AY 2025-26 claiming APERC exemption, file a revised return (Form ITR-U) to correct the position and avoid notice or penalty.
• Professional guidance is critical: Every entity claiming or previously claimed this exemption should consult a tax expert to ensure full compliance and to plan for the post-exemption period under Income Tax Act, 2025.

Need expert help with this? EaseValue CAs in Jaipur — WhatsApp 63677 44602