SEZ Unit and Bio-degradable Waste Business Deductions: Sections 144 and 145 of the Income Tax Act 2025

The Income Tax Act 2025 has two special business deductions that are easy to confuse. Section 144 keeps alive the deduction for newly established units in Special Economic Zones (SEZs), calculated exactly as the repealed section 10AA of the 1961 Act would have allowed it. Section 145 gives a deduction equal to the whole of the profits of a business that collects and processes bio-degradable waste, for five consecutive tax years starting with the year the business begins.

A note on the title: section 145 covers bio-degradable waste (for power, bio-fertilisers, bio-gas, pellets and briquettes). The text of the section does not mention bio-diesel, so this guide sticks to what the section says. Everything below is taken from the Act as amended by the Finance Act 2026 and the Income-tax Rules 2026, last reviewed on 10 November 2026.

What is the SEZ unit deduction under section 144?

Section 144 applies to an assessee who is an entrepreneur as referred to in section 2(j) of the Special Economic Zones Act, 2005, and who begins to manufacture or produce articles or things, or provide services, as referred to in section 10AA of the 1961 Act. The assessee must also be eligible to claim a deduction from profits and gains derived from the export of those articles, things or services, as if the 1961 Act had not been repealed.

If both tests are met, the Act allows a deduction from the profits and gains derived from that business, with two conditions:

1. the amount of the deduction is calculated as per section 10AA of the 1961 Act; and
2. the deduction is allowed only for the tax years in which section 10AA would have allowed it, as if the 1961 Act had not been repealed.

So section 144 does not set a new percentage or a new period. It points back to section 10AA for both. The rates and the number of years are not stated in the 2025 Act text, so confirm them from the old section 10AA before computing a claim for a unit.

What is the deduction for bio-degradable waste businesses under section 145?

Section 145 applies when the gross total income of an assessee includes profits and gains from the business of collecting and processing, or treating, bio-degradable waste for any of these purposes:

• (a) generating power;
• (b) producing bio-fertilisers, bio-pesticides or other biological agents;
• (c) producing bio-gas; or
• (d) making pellets or briquettes for fuel or organic manure.

The deduction is equal to the whole amount of those profits and gains, for five consecutive tax years, beginning with the tax year in which the business commences. The five years run back to back. A year in which the business has a loss, or is dormant, still counts as one of the five.

Section 144 and section 145 side by side

	Section 144 (SEZ unit)	Section 145 (bio-degradable waste)
Who	Entrepreneur under section 2(j) of the SEZ Act, 2005, starting manufacture, production or services	Any assessee whose gross total income includes profits from the waste business
Which profits	Profits and gains from that business, linked to export	Profits and gains from collecting and processing or treating bio-degradable waste for the four listed uses
How much	As worked out under section 10AA of the 1961 Act	The whole amount of such profits
For how long	Only the tax years section 10AA would have allowed	Five consecutive tax years from the year the business commences
Audit report	Form No. 32 (rule 66)	Rule 66 does not list section 145

What compliance does an SEZ unit claiming section 144 need?

Rule 66 of the Income-tax Rules, 2026 covers audit for deductions under sections 46, 138, 139, 140, 141, 142, 143 and 144. Section 144 is listed, section 145 is not. For a section 144 claim:

• The accounts of the eligible business for the tax year must be audited by an accountant (as defined in section 515(3)(b)) before the specified date in section 63, and the signed report furnished by that date (rule 66(1)).
• The report is in Form No. 32 (rule 66(2)).
• Each undertaking or enterprise files a separate report, with its own profit and loss account and balance sheet as if it were a distinct entity (rule 66(3)).
• Rule 66(4) maps sections to Form 32 parts and attachments. Section 139 is listed against Part B3 with a copy of the SEZ notification. Check the table in rule 66(4) for the part and documents that apply to the claim being made.
• Rule 67 requires particulars of the amount credited to a Special Economic Zone Reinvestment Allowance Reserve Account and its utilisation, in Form No. 33, along with the return of income.

The files I worked from do not state what Form 33 must contain beyond that description, so read the form itself before filing.

How is the section 145 deduction calculated? Two worked examples

Example 1: profits and other income in one year (tax year 2026-27). Meena runs a business that collects market waste and converts it to bio-gas. She began it in April 2026. Assumptions: she also earns bank interest, and has no other business.

Step	Item	Rs
1	Profits of the bio-gas business	12,40,000
2	Interest from savings account (income from other sources)	60,000
3	Gross total income (1 + 2)	13,00,000
4	Section 145 deduction: whole of the business profits (step 1 only)	12,40,000
5	Balance (3 - 4), before any other deduction	60,000

The deduction is on the profits and gains derived from the business, so the interest stays in the computation.

Example 2: the five-year window. Ravi starts a company that makes fuel briquettes from agricultural waste in October 2027. The first tax year is 2027-28. Assumptions: the profit figures below are for the waste business only.

Tax year	Year of the window	Business profit (Rs)	Section 145 deduction (Rs)
2027-28	1	4,00,000	4,00,000
2028-29	2	9,50,000	9,50,000
2029-30	3	14,00,000	14,00,000
2030-31	4	16,25,000	16,25,000
2031-32	5	18,00,000	18,00,000
2032-33	none	20,00,000	0
Total deducted			61,75,000

Check: 4,00,000 + 9,50,000 + 14,00,000 + 16,25,000 + 18,00,000 = 61,75,000. The profit of Rs 20,00,000 in 2032-33 is fully taxable because the five years ended in 2031-32.

Real-life scenarios

Scenario 1: a unit in an SEZ. Kavita runs a software services unit in a notified SEZ that began providing services at a time when section 10AA applied, and it exports those services. Because she is an entrepreneur under the SEZ Act and would still be eligible under section 10AA as if the 1961 Act had not been repealed, section 144 allows a deduction for her export profits for the tax year being claimed (for example 2026-27). A unit that began later would first need to check that it falls within section 10AA at all. Both the amount and the number of years come from section 10AA, and her CA files Form No. 32 for the unit, separate from any other business she runs.

Scenario 2: a mixed business. Arjun collects kitchen waste from hotels, sells part of it as animal feed and converts the rest into bio-gas. Section 145 covers profits from collecting and processing the waste for the four listed uses. Whether the feed-selling profit falls under any of those four uses is a question of facts that the section text does not settle, so his CA should separate the accounts of the two activities before claiming.

Common mistakes

• Assuming section 144 sets its own rate and years. It borrows both from section 10AA of the 1961 Act.
• Treating a bio-diesel plant as covered by section 145. The section names power, bio-fertilisers, bio-pesticides and other biological agents, bio-gas, and pellets or briquettes for fuel or organic manure, made from bio-degradable waste.
• Starting the five-year count from the year profits first appear. It starts from the year the business commences.
• Claiming the deduction on the whole gross total income. It applies to the profits and gains of the eligible business only.
• Not preparing a separate Form 32 report for each SEZ undertaking (rule 66(3)).
• Forgetting Form 33 and the SEZ Reinvestment Allowance Reserve Account particulars for a section 144 claim (rule 67).

Quick reference

Point	Section 144	Section 145
Deduction	Per section 10AA, 1961 Act	100% of eligible profits
Period	Years allowed under section 10AA	5 consecutive tax years from commencement
Audit report	Form No. 32 (rule 66)	Not listed in rule 66
Other particulars with return	Form No. 33 (rule 67)	None stated in the files reviewed

Where this is in the Act

• Section 144: deduction for newly established units in SEZs
• Section 145: deduction for collecting and processing bio-degradable waste
• Section 2: definitions, including "Special Economic Zone" (clause 104)
• Section 205(1)(g): section 144 deduction ignored for certain company tax computations
• Section 288(1), Table Sl. No. 6: amendment when export income is received late
• Section 63: specified date for filing the audit report
• Section 515(3)(b): "accountant" for audit reports
• Rule 66: audit report in Form No. 32 for sections 46, 138 to 144
• Rule 67: Form No. 33 for section 144 claims

This article does not map these sections to the older law except where the Act names it. Section 144 itself refers to section 10AA of the 1961 Act. For a model of how this series reads a section together with its rules, see our guide on TDS on rent under the Income Tax Act 2025.

Can the section 144 deduction be claimed later if export money arrives late?

Yes, in one case. Under section 288(1), Table Sl. No. 6, if the Assessing Officer did not allow the section 144 deduction because the export income was not received in convertible foreign exchange in India, or was received outside India and not brought into India with approval, the assessment can be amended to allow the deduction once that income is received in, or brought into, India. The amendment must be made within the four-year period under section 287(8), counted from the end of the financial year in which the income is received or brought in.

Does the section 144 deduction help when a company pays tax under section 199 to 204?

Not for those computations. Section 205(1)(g) says that for the purposes of sections 199(1)(c)(i)(C), 200(1)(a)(iii), 201(3)(a)(iii), 203(1)(a)(ii) and 204(3)(a)(ii), total income is worked out without the section 144 deduction. A company on one of those tax options should therefore not assume the deduction reduces its tax there.

How can CA firms keep track of these claims?

For a CA, the work is knowing which clients have a unit still inside its claim window, which need a separate Form 32 report per undertaking, and when the audit must be furnished. Finexo's practice management software tracks deadlines and document requests across your client book. It does not compute the deduction or file the forms for you.

This article explains the Income Tax Act 2025 (as amended by the Finance Act 2026) and the Income-tax Rules 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.