rebate u/s 80-IB

This query is : Resolved

RAVINDER K. GOEL (Querist)
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04 September 2008 A prop. ship firm is availing deducxtion u/s 80-IB from the last 4 years. Now the prop. and his wife want to have a PVT Ltd. company, which will take over the entire business of prop. firm.

Will the company be eligible for the deduction u/s 80 IB, which the prop. was availing for that business.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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04 September 2008 THIS IS CONVERSION OF A PROPRIETORY CONCERN INTO A PRIVATE LTD COMPANY. DEDUCTION U/S 80-IB WILL NOT BE ALLOWED IN THE YEAR OF CONVERSION. FROM THE IMMEDIATELY SUCCEEDING YEAR ONWARDS DEDUCTION WILL BE ALLOWED SUBJECT TO THE SATISFACTION OF OTHER CONDITIONS MENTIONED IN THE SAID SECTION.

RAVINDER K. GOEL

RAVINDER K. GOEL (Querist)
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17 September 2008
Dear Mr. Chakrapani,
If I am converting the prop. firm into a pavt ltd. co. in the month of March, say on Ist of March the pvt ltd. company takes over the business of prop. firm. It simply mens that, the profit upto Feb. is taxable as prop. business and for the month of march it will be taxed in the name of the company. Now my querry is whether. as a prop. concern I will get the deduction u/s 80 IB or not. Forther as you replied, the company will not get the deuction in the year of conversion.
So it means, that in the next year from April onwards, the company will be eligible for the deduction.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2025 Yes, your understanding is correct.

Here’s a clear summary regarding rebate under Section 80-IB when a proprietorship firm converts into a Private Limited Company:

Key Points:
Proprietorship Firm (before conversion):
The deduction under Section 80-IB will be available for the period during which the business was operated as a proprietorship.
So, for example, if the proprietorship firm runs till 28th February and converts on 1st March, the income earned up to 28th February can claim the deduction under 80-IB (subject to fulfillment of other conditions).
Private Limited Company (after conversion):
For the financial year in which the conversion happens, the company is NOT eligible to claim the deduction under Section 80-IB.
From the next financial year onwards (i.e., starting from 1st April of the following year), the company can claim deduction under Section 80-IB provided all other conditions of the section are met.
Reason:
The tax law views the proprietorship and the company as separate entities. The deduction under Section 80-IB is granted for profits of eligible businesses for the relevant assessment year. Since the ownership and legal status changes in the year of conversion, the company cannot claim the deduction in the year of conversion.

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