Section 139 of the Income-tax Act, 2025 — Deduction for Developers of Special Economic Zones (SEZs)

In plain language

What Section 139 actually is

In the Income-tax Act, 2025 (in force from 1 April 2026), Section 139 deals with the deduction of profits earned by an undertaking or enterprise engaged in the development of a Special Economic Zone (SEZ). This is important to note because in the old Income-tax Act, 1961, Section 139 meant "Return of income" — that filing provision has now been renumbered as Section 263 in the 2025 Act. So the section number 139 has been completely repurposed. The provision that Section 139 (2025) carries forward is the old Section 80-IAB of the 1961 Act.

What it means in plain language

An SEZ developer is the company or entity that builds and develops the SEZ — laying roads, power, water, buildings and other infrastructure — as opposed to the units that operate inside the SEZ (those units are covered separately). Section 139 lets an eligible developer claim a 100% deduction of the profits and gains derived from the business of developing an SEZ, effectively making that income tax-free for the qualifying years.

• Deduction amount: 100% of the profits and gains from the SEZ development business.
• Period: Any 10 consecutive tax years chosen by the developer, out of a 15-year block beginning from the year the SEZ was notified by the Central Government.
• The developer picks the block — you can start the 10-year run in any year within the 15-year window to maximise benefit against years of higher profit.

Who it applies to

• A developer (typically a company) whose gross total income includes profits from the business of developing an SEZ.
• The SEZ must have been notified on or after 1 April 2005 under the Special Economic Zones Act, 2005.
• A transferee developer (where operation and maintenance is transferred) can claim the deduction for the balance of the unexpired years, as if no transfer had happened.

The critical sunset clause

Section 139 is essentially a grandfathering / legacy provision. No new SEZ developer can start claiming this from scratch under the 2025 Act. Under the original Section 80-IAB, the benefit was not available where development of the SEZ began on or after 1 April 2017. That sunset date has not been revived. Section 139 (2025) simply says the deduction is computed as per Section 80-IAB of the 1961 Act and is allowed only for those tax years that would have been allowed under Section 80-IAB. In other words, if a developer was midway through its 10-year run when the 1961 Act was repealed, the remaining years continue seamlessly under Section 139 — but nobody gets a fresh entitlement.

Key conditions and limits

• Timely return: The return of income must be filed by the due date under the return-filing provisions of the Act to claim the deduction.
• Audit: Accounts must be audited and an audit report (historically Form 10CCB) furnished for the claim.
• MAT/AMT applies: Even though the profit is deducted from normal total income, Minimum Alternate Tax (MAT) for companies and Alternate Minimum Tax (AMT) for others can still apply to book profits/adjusted total income. The deduction reduces regular tax, not necessarily MAT/AMT.
• No double deduction: The same profits cannot be claimed under any other deduction provision.

How it interacts with related sections

• Section 140 (2025 Act) / old Section 10AA covers the SEZ units (exporters operating inside the zone) — a separate benefit from the developer benefit here.
• MAT/AMT provisions of the 2025 Act override the tax-free effect for minimum-tax purposes.
• General deduction machinery conditions (audit, timely filing, no double claim) mirror the wider Chapter on profit-linked deductions.

Practical implications

For most taxpayers this section is irrelevant — it targets a narrow set of SEZ developer companies. If you are such a developer already inside your 10-year window, the takeaway is continuity: your accrued benefit survives the transition to the new Act. Do not expect to launch a new SEZ today and claim this — the door for fresh entrants closed with the 1 April 2017 sunset. Careful selection of which 10 years within the 15-year block to claim, and planning around MAT, remain the two levers that matter.