Sections 138 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 138 and 139 are the first two sections of Part C of Chapter VIII, "Deductions in respect of certain incomes". Each is built the same way: it gives a deduction from the profits of a named kind of business, and it ties both the amount and the number of years to a section of the Income-tax Act, 1961 that the Act itself names, as if that Act had not been repealed. This article reads the two sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help with deduction claims of this kind, see our tax planning advisory.
Section 138 allows a deduction from profits derived by an undertaking or enterprise from a business referred to in section 80-IA of the Income-tax Act, 1961, if the assessee is eligible under that section "as if the said Act had not been repealed". Section 139 does the same for a Developer of a Special Economic Zone notified on or after 1 April 2005, by reference to section 80-IAB. In each case the amount is calculated, and the years are limited, as that named section would have allowed. The Act itself prints no rate and no number of years.
What the two sections have in common
Both sections open with "In respect of any tax year, where" and then set two tests and two conditions:
| Element | Section 138 | Section 139 |
|---|---|---|
| Test (a): the income | Gross total income of the assessee includes profits and gains derived by an undertaking or enterprise from any business referred to in section 80-IA of the Income-tax Act, 1961 | Gross total income of an assessee, being a Developer, includes profits and gains derived by an undertaking or enterprise from the business of developing a Special Economic Zone, notified on or after 1 April 2005 under the Special Economic Zones Act, 2005, referred to in section 80-IAB of the Income-tax Act, 1961 |
| Test (b): eligibility | The assessee is eligible to claim a deduction for the tax year under the provisions of that section, as if the said Act had not been repealed | Same, by reference to section 80-IAB |
| Result | A deduction from the profits and gains derived from such business, in computing total income | Same |
| Condition (i) | The amount is calculated as per section 80-IA of the Income-tax Act, 1961 | The amount is calculated as per section 80-IAB of the Income-tax Act, 1961 |
| Condition (ii) | The deduction under the 2025 Act is allowed only for such tax years as would have been allowed under section 80-IA, as if the said Act had not been repealed | Same, by reference to section 80-IAB |
The two references to the Income-tax Act, 1961 are quoted as printed. The 2025 Act does not repeat what the named sections provide: which businesses qualify, what the rate or percentage is, how many years the deduction runs, or what conditions apply. Those matters are in the sections of the other Act that the 2025 Act names, and they are not in the text consulted for this article. The reader needs to check those sections themselves, and any later amendment, before claiming.
Section 138: infrastructure undertakings and enterprises
How to read it
Section 138 asks two questions for each tax year:
- Does the assessee's gross total income include profits and gains derived by an undertaking or enterprise from a business of the kind referred to in section 80-IA of the Income-tax Act, 1961?
- Is the assessee eligible, for that tax year, to claim a deduction from those profits under that named section, "as if the said Act had not been repealed"?
If both answers are yes, a deduction from the profits and gains derived from the business is allowed in computing total income. The amount is what the named section would produce, and the deduction is available only for the tax years for which the named section would have allowed it.
Example (invented). Greenway Infra Ltd. has an undertaking whose business is one referred to in the named section. For a tax year it is eligible under that section, and the deduction computed under that section for the profits of the undertaking is Rs. 12,00,000 (an assumed figure for illustration). Section 138 allows Rs. 12,00,000 in computing total income for that tax year. If the named section would not have allowed a deduction for a later tax year, section 138 does not allow one either (condition (ii)).
Section 139: Special Economic Zone developers
How to read it
Section 139 is narrower in who it covers. The assessee must be a Developer, and the profits must come from the business of developing a Special Economic Zone that was notified on or after 1 April 2005 under the Special Economic Zones Act, 2005, as referred to in section 80-IAB of the Income-tax Act, 1961. The Special Economic Zones Act, 2005 is another law; check it for the meaning of "Developer" and for what counts as a notified zone.
As in section 138, the assessee must be eligible for the tax year under the named section as if the other Act had not been repealed, the amount is calculated as per that section, and the 2025 Act's deduction is allowed only for the tax years that the named section would have allowed.
Example (invented). Coastline SEZ Developers Pvt. Ltd. is a Developer of a Special Economic Zone notified after 1 April 2005. For a tax year it is eligible under the named section, and the deduction computed under that section is Rs. 20,00,000 (assumed). Section 139 allows Rs. 20,00,000 for that tax year, and only for such tax years as the named section would have allowed.
How these deductions interact with others
- No double deduction within Part C. Section 140(12) says that where profits of an undertaking or enterprise are claimed and allowed under section 140 for a tax year, no deduction to the extent of those profits is allowed under any other provision of Part C of the Chapter, and it does not exceed the profits. Section 143(5) separately bars deduction under any other section of the Chapter for the profits of an undertaking covered by section 143. Sections 138 and 139 themselves print no such bar; check the sections of Part C that apply to your business before claiming more than one. See our articles on section 140 and on sections 143 to 145.
- The overall limit. Chapter VIII deductions in aggregate cannot exceed gross total income (section 122(2)); see the live note on section 122.
- Other sections in Part C. Section 141 and 142 follow the same pattern for other businesses; see our article on sections 141 and 142. Section 144 does the same for newly established units in Special Economic Zones.
What the text does not tell you
| Question | Where the 2025 Act's text stands |
|---|---|
| What is the rate or percentage of the deduction? | Not printed in section 138 or 139 |
| For how many years? | Not printed; the years are those the named section would have allowed |
| What conditions must the business meet? | Not printed; those of the named section |
| Is an audit report or other document required? | Not printed in sections 138 or 139 |
| Is there a cut-off date for new undertakings? | Not printed in section 138; section 139 requires the zone to be notified on or after 1 April 2005 |
Need help with a Part C deduction?
Sections 138 and 139 turn on what the section they name would have allowed for each tax year, so the work is in reading that section against your facts. Our tax planning advisory team can help you test your eligibility and the years of claim.
Key takeaways
- Sections 138 and 139 give a deduction tied to section 80-IA and section 80-IAB of the Income-tax Act, 1961, respectively, as the Act itself prints.
- The amount is calculated as per the named section, and the deduction is allowed only for the tax years the named section would have allowed.
- Section 139 applies to a Developer of a Special Economic Zone notified on or after 1 April 2005.
- The 2025 Act prints no rate, no year count and no business conditions in these two sections.
- Within Part C, other sections restrict claiming more than one deduction on the same profits.
Read next
- Section 140: deduction for eligible start-ups
- Sections 141–142: certain industrial undertakings and housing projects
- Sections 135–137: donations to research bodies and political parties
- Income-tax Act 2025 Chapter VIII
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.