Section 138 of the Income-tax Act, 2025 — Deduction for Enterprises in Infrastructure Development (Continuation of Section 80-IA Benefits)

In plain language

What Section 138 actually does

Section 138 of the Income-tax Act, 2025 is a grandfathering (transitional) provision. It does not create a brand-new tax holiday. Instead, it preserves the deduction that infrastructure and industrial undertakings were already enjoying under the old Section 80-IA of the Income-tax Act, 1961, after that Act was repealed and replaced by the 2025 Act (effective 1 April 2026).

In plain words: if your enterprise had started a qualifying infrastructure business and was already claiming — or was still eligible to claim — the 80-IA deduction, you do not lose that benefit just because the law was rewritten. You continue to claim it under Section 138, computed on exactly the same basis and for exactly the same number of remaining years.

Who it applies to

• Enterprises whose gross total income includes profits from a business referred to in Section 80-IA of the 1961 Act — and who would have been eligible for that deduction had the old Act not been repealed.
• Typical qualifying businesses under 80-IA: infrastructure facilities (roads, highways, bridges, rail systems, water supply and treatment, irrigation, ports, airports, inland waterways), power generation/transmission/distribution, telecommunication services, notified industrial parks and certain SEZ-related undertakings.
• The enterprise must generally be an Indian company or a consortium/authority as required by the original 80-IA conditions (for infrastructure facilities, an agreement with the Central/State Government or a local/statutory authority is required).

What you can claim — amount and duration

• 100% of profits and gains derived from the eligible undertaking are deductible (the same rate as under 80-IA).
• The deduction runs for 10 consecutive assessment years, which the taxpayer may choose out of a 15-year window (or 20 years for certain infrastructure facilities other than ports, airports, inland waterways or navigational channels) beginning from the year the undertaking began operations (the "initial assessment year").
• Critical limit: Section 138 only allows the deduction for the number of tax years that would still have been available under 80-IA. If your 10-year holiday has already been fully used up, or the eligibility window has lapsed, nothing further is available under Section 138.

Key conditions to keep the deduction safe

• No new entrants: Because 80-IA itself had sunset (commencement) dates, businesses starting fresh after 1 April 2026 generally cannot create a new 80-IA-type claim. Section 138 protects existing eligibility, it does not open a new door.
• Audit report is mandatory: The accounts of the undertaking must be audited by a Chartered Accountant and the audit report furnished in Form 10CCB (as required under the 80-IA regime).
• File on time: Consistent with the old rule, the return must be filed by the due date to preserve the Chapter VIII-type profit-linked deduction.
• Ring-fencing of profits: Only profits derived from the eligible undertaking qualify; other income (e.g. interest, unrelated business income) is excluded. Inter-unit transfers must be at market value.

How it interacts with other provisions

• Section 139 of the 2025 Act is the companion provision that grandfathers the SEZ-development deduction (old 80-IAB). Section 138 handles the 80-IA (infrastructure) stream.
• Deduction cannot exceed the eligible business profits, and the same profits cannot be claimed twice under two provisions (no double deduction).
• The deduction reduces total income, but note that profit-linked holidays like this generally do not apply if the taxpayer opts for certain concessional tax regimes — check the regime-specific restrictions before claiming.

Practical implications

For most taxpayers, Section 138 means continuity, not change. If you are a developer or operator part-way through your 10-year holiday, keep computing the deduction the same way, keep getting Form 10CCB signed, and simply cite Section 138 of the 2025 Act instead of 80-IA of the 1961 Act. The economic benefit — a 100% deduction of eligible profits for the balance of your holiday period — remains fully intact.