New Hotels – Investment linked deduction @ 100% – SECTION 35AD(3)

Benefits of profit linked deduction under Chapter VI-A of the Income-tax Act are currently available to specified  categories of hotels  in Uttarakhand and Himachal Pradesh; National Capital  Territory and  adjacent districts; 22 districts  having  World  Heritage  Sites and  North-Eastern  States, which start functioning before specified dates mentioned in the Act.

In view of the high employment potential of this sector, it is proposed to provide investment linked incentive to the  hotel sector, irrespective of  location, under section 35AD of the Income-tax  Act.

The investment-linked tax incentive allows 100 per cent deduction in respect of the whole of  any  expenditure  of  capital  nature  (other  than  on  land, goodwill  and  financial  instrument) incurred wholly and  exclusively, for the  purposes of the “specified  business” during the previous year in which such expenditure is incurred.

Currently,  such “specified  business” means  the  business of  setting  up  and  operating  cold  chain facilities, warehousing  facilities  for  storage  of  agricultural  produce  and  laying  and  operating  a cross-country natural gas or crude or petroleum oil pipeline network.

It is now  proposed to include  the  business of  building and  operating  a  new hotel of  two-star  or above category, anywhere in India, which starts functioning after 1.4.2010 within the purview of “specified business”.

It is also proposed to provide that where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions  of  Chapter  VI-A  in  relation  to  such  specified  business  for  the  same  or  any  other assessment year. A similar amendment is proposed in section 80A.

These amendments are proposed to take effect from the Assessment Year 2011-2012.