Section 33AB of Income Tax Act: Tax Deductions for Tea, Coffee, and Rubber Development Accounts

Section 33AB of the Income Tax Act of 1961, is a provision that aims to promote reinvestment in India's tea, coffee, and rubber sectors. It allows businesses engaged in these sectors to claim deductions on profits allocated to specific development accounts. In this article, we will discuss Section 33AB of the Act, including eligibility, conditions, and the amount specified. 

Eligibility Criteria

To qualify for deductions under Section 33AB, an assessee must:  

• Be engaged in both the cultivation and manufacturing of tea, coffee, or rubber in India.  
• Deposit the eligible amount into designated accounts under schemes approved by the Tea Board, Coffee Board, or Rubber Board, in accordance with the Central Government’s guidelines.  

Designated Accounts for Deposits  

Permissible Accounts  

Deposits eligible for deduction under Section 33AB must be made into the following:

• Special Account with NABARD: As per the approved scheme.  
• Deposit Account: Under a scheme approved by the Tea Board, Coffee Board, or Rubber Board and sanctioned by the Central Government.  

Quantum of Deduction  

The deduction allowable is the lesser of:  

• The actual amount deposited in the designated account(s).  
• 40% of the profits from the eligible business, calculated under the head ‘Profits and Gains of Business or Profession’ before considering this deduction. 

Example: If a taxpayer deposits ₹1,20,000 into the designated account and the profit from the business is ₹2,00,000, the deduction allowable would be ₹80,000 (i.e., 40% of ₹2,00,000), as it is less than the deposited amount.  

Timeframe for Deposits  

Deposits must be made on or before the earlier of:  

• Six months from the end of the financial year.  
• The due date for filing the income tax return for that year.  

Example: For the financial year 2023–24, if the due date for filing the return is July 31, 2024, and six months from the end of the financial year is September 30, 2024, the deposit should be made by July 31, 2024.  

Utilization and Withdrawal of Funds  

The withdrawal and utilization of funds is allowed only if the:

• Funds must be utilized for specified purposes under the development schemes, such as purchasing new machinery, conducting R&D, or upgrading facilities.  
• Withdrawals for non-business or unspecified purposes will be treated as income and taxed accordingly in the year of withdrawal.  

Tax Implications for Non-Compliance  

Un-utilized withdrawn amounts for specific purposes as specified in the development scheme or where assets acquired with these funds are sold within eight years of their purchase then such un-utilized amount or the cost at which the asset was purchased will be taxed.

Audit Requirements  

To claim deductions under Section 33AB, an assessee must:  

• Ensure their accounts are audited by a qualified Chartered Accountant before the specified due date.  
• Submit the audit report in Form No. 3AC along with their income tax return. 

Benefits  

The following are the benefits of the Section 33AB:

• Reduced Tax Liabilities: It helps businesses lower their taxable income.
•  Industry Development: It encourages development in the tea, coffee and rubber industries.

Conclusion  

Section 33AB allows businesses in the tea, coffee, and rubber industries to lower their tax liabilities while supporting growth in these sectors. By following the required deposit timelines and using the funds as intended, businesses can make the most of this opportunity. It's also a good idea to consult with tax professionals or the relevant commodity boards to ensure everything is in order and to fully maximize the benefits.