Section 33AB of the Income Tax Act: A Guide on Deductions for Tea, Coffee, and Rubber
- Farheen Mukadam
- Aug 19
- 6 min read
Certain industries have immense potential because of the unique value of the product they provide. For this reason, they are supported by the government in different ways, including encouraging them through special tax benefits. In this context, the purpose of Section 33AB of the Income Tax Act of 1961 is to encourage investments in India's coffee, tea, and rubber industries. It enables companies operating in these industries to deduct profits from accounts designated for development.
Table of Contents
What is Section 33AB of the Income Tax Act?
According to Section 33AB of the Income Tax Act of 1961, you can receive a tax deduction if you operate a firm that produces or grows tea, coffee, or rubber. The taxpayers have to deposit the money into one of the accounts listed below in order to receive the deduction:
Provide the funds in the specific account that is kept at the Nationalised Bank.
Transfer the funds to the deposit account.
Eligibility Criteria to Claim Deduction under Section 33AB
To be eligible for Section 33AB deductions, an assessee needs to:
Be involved in the production of tea, coffee, or rubber in India as well as their cultivation.
According to Central Government rules, deposit a specified amount into designated accounts under schemes approved by the Tea Board, Coffee Board, or Rubber Board.
Designated Accounts to Deposit
To claim the deduction, you must deposit the necessary funds into one of the following accounts (for use for the designated purposes):
Deposit the required sum into a "special account" with the National Bank for Agriculture and Rural Development (NABARD) as per the Tea Board, Coffee Board, or Rubber Board scheme.
Deposit the required sum into any "deposit account" in accordance with the Tea Board, Coffee Board, or Rubber Board arrangement. The Central Government should, however, accept the plan.
Quantum of Deduction under Section 33AB
The following components have a lower allowable deduction amount:
The sum that was placed into the designated account.
40% of the relevant enterprises' profits (before deductions for business or professional profits and gains)
Illustration: If a taxpayer named Mr. X deposits Rs. 1,30,000 into the designated account and makes Rs. 2,00,000 from his business. Since it is less than the deposited sum of Rs. 1,20,000, the permitted deduction will be 40% of Rs. 2,00,000 = Rs. 80,000.
Timeframe for Deposit to Claim Deduction under Section 33AB
To claim the deduction, you must deposit the money into the "special account" or "deposit account" before the following deadline.
Six months before the end of the previous year or six months after the end of the financial year in which you are claiming the deduction; or
The day on which income tax returns (ITRs) must be filed.
Whichever comes first should be used as the time frame for depositing the money.
For instance, if the income tax return filing due for the financial year 2024–2025 is July 31, 2025, and September 30, 2025, is six months from the financial year-end, the deposit must be made by July 31, 2025, since it is the earlier date.
Fund Utilisation and Withdrawal
The money placed in the "special account" or "deposit account" may be used in accordance with the Rubber Board, Coffee Board, or Tea Board's plan. However, in order to claim the deduction under Section 33AB of the Income Tax Act, 1961, the deposited cash cannot be utilised for the following purposes.
Purchasing equipment for use in offices and homes
Acquisition of assets for which PGBP (Profits and Gains of Business or Profession (100% depreciable assets)) permits a 100% deduction
Purchasing office equipment, but not computers
Purchasing equipment and plants to produce or build anything on the Eleventh Schedule
When calculating income under the heading of "Profits and gains of business or profession," the deposit amount used for these reasons is considered "income" and is subject to income tax. Funds may only be withdrawn and used in the following circumstances:
Under the development schemes, funds must be used for specific reasons, such as improving facilities, performing research and development, or buying new machinery.
In the year of withdrawal, withdrawals made for non-business or undefined purposes will be regarded as income and subject to the appropriate taxation.
Withdrawal of the Deposited Amount
Funds from the designated account can be withdrawn in the following cases:
For specific business purposes
Separation of the Hindu Undivided Family (HUF)
Death of the assessee
Business closure
Liquidation of a company/dissolution of a firm
Each of these scenarios has different tax norms, as highlighted in the table below:
Purpose of withdrawal | Taxability |
Dissolution of firm | Taxable |
Business closure | Taxable |
Death of the assessee | Non-taxable |
Partition of Hindu undivided family (HUF) | Non-taxable |
Liquidation of the company | Non-taxable |
To prevent the removal of the deduction under Section 33AB of the Income Tax Act of 1961, there are a few considerations. These include:
When you remove money that has been deposited and do not use it for a designated purpose, it is considered "income" for the purposes of calculating income under the heading "Profits and gains of business or profession" and is subject to income tax.
Assets bought with deposited funds: You have eight years from the end of the fiscal year in which you buy the asset to sell or transfer it; if you do not, the deduction is taken away and the purchase price is considered "income" and subject to income tax.
For taxation purposes, any proceeds from the asset's sale are regarded as "short-term capital gains." The firm's conversion to a corporation, in which all assets and obligations are transferred to the company and the proprietors become shareholders, and the sale of assets to the government, a government enterprise, or a local authority are regarded as exceptions.
Tax Repercussions for Non-Compliance with Section 33AB
Unused withdrawals for particular uses outlined in the development plan or the sale of assets obtained with these funds within eight years of purchase will result in taxes on the unutilised amount or the asset's purchase price.
Audit Requirements under Section 33AB
According to Section 33AB of the Income Tax Act, the following audit standards must be met:
Before the deadline, make sure the accounts are audited by certified chartered accountants.
Together with your income tax return, you must submit the audit report on Form 3AC.
Benefits of Section 33AB of the Income Tax Act
The following advantages are available to businesses under Section 33AB of the Income Tax Act:
Decreased Tax Liabilities: Businesses can drastically lower their tax burden by taking advantage of tax deductions on the deposited amount. This facilitates smoother operations and financial stability by improving the company's cash flow.
Scope for Industry Development: It encourages business growth among tea, coffee, and rubber producers because the deposited funds can be used and retrieved for particular objectives like R&D, technology upgrades, or developmental activities.
Conclusion
By claiming deductions for deposits into specified accounts, Section 33AB of the Income Tax Act assists enterprises (such as those in the rubber, coffee, and tea industries) in lowering their tax obligations. The Central Government of India authorises these accounts, which are decided by NABARD. Make sure you adhere to the withdrawal guidelines in order to meet Indian tax regulations. The deposited money will be considered taxable income if you withdraw it and use it for reasons not allowed by the regulations. You will therefore not be able to deduct this amount from your taxes. Make sure you abide by the laws and rules in this section to prevent such situations.
Frequently Asked Questions
Q1. Who is eligible for deductions under Section 33AB?
Companies that grow and produce tea, coffee, or rubber in India are qualified as long as they put money into development accounts that have been authorised by the Rubber Board, Coffee Board, or Tea Board.
Q2. When should I deposit funds to avail deductions under Section 33AB?
Within six months of the conclusion of the applicable fiscal year or by the deadline for submitting an income tax return for that year, whichever comes first, you must transfer the money into the specified account.
Q3. Which form should I use to avail deductions under Section 33AB?
To claim deductions under Section 33AB, you must utilise Form 3AC. It facilitates the usage of cash for industrial development while assisting you in lowering your tax liability.
Q4. What is the maximum amount of deduction that I can avail under Section 33AB?
Section 33AB allows you to deduct up to 40% of your business profits (before this deduction) or the amount deposited in the designated account, whichever is less. The precise limit is determined by your business's profits for the fiscal year as well as the amount you placed.
Q5. Do rules governing the tea, coffee, and rubber industry keep changing?
Rules may be susceptible to change if the government determines that it is essential to update, modify, or create new regulations for these industries, or if it believes that the existing laws are unnecessary and that new laws are consequently needed to support the sector's or industry's economic growth.
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