Section 80HHB — Foreign Project Earnings (Legacy)

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Deduction in respect of profits and gains from projects outside India.

80HHB. (1) Where the gross total income of an assessee being an Indian company or a person (other than a

company) who is resident in India includes any profits and gains derived from the business of—

(a) the execution of a foreign project undertaken by the assessee in pursuance of a contract entered

into by him, or

(b) the execution of any work undertaken by him and forming part of a foreign project undertaken by

any other person in pursuance of a contract entered into by such other person,

with the Government of a foreign State or any statutory or other public authority or agency in a foreign

State, or a foreign enterprise, there shall, in accordance with and subject to the provisions of this section, be

allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount

equal to—

(i) forty per cent thereof for an assessment year beginning on the 1st day of April, 2001;

(ii) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2002;

(iii) twenty per cent thereof for an assessment year beginning on the 1st day of April, 2003;

(iv) ten per cent thereof for an assessment year beginning on the 1st day of April, 2004,

and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005

and any subsequent assessment year :

Provided that the consideration for the execution of such project or, as the case may be, of such work is

payable in convertible foreign exchange.

(2) For the purposes of this section,—

(a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the

Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange

Management Act, 1999 (42 of 1999), and any rules made thereunder;

(b) "foreign project" means a project for—

(i) the construction of any building, road, dam, bridge or other structure outside India ;

(ii) the assembly or installation of any machinery or plant outside India ;

(iii) the execution of such other work (of whatever nature) as may be prescribed.

(3) The deduction under this section shall be allowed only if the following conditions are fulfilled, namely

:—

(i) the assessee maintains separate accounts in respect of the profits and gains derived from the

business of the execution of the foreign project, or, as the case may be, of the work forming part of

the foreign project undertaken by him and, where the assessee is a person other than an Indian

company or a co-operative society, such accounts have been audited by an accountant as defined

in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his

return of income, the report of such audit in the prescribed form duly signed and verified by such

accountant;

(ia) the assessee furnishes, along with his return of income, a certificate in the prescribed form from an

accountant as defined in the Explanation below sub-section (2) of section 288, duly signed and

verified by such accountant, certifying that the deduction has been correctly claimed in accordance

with the provisions of this section ;

(ii) an amount equal to such percentage of the profits and gains as is referred to in sub-section (1) in

relation to the relevant assessment year is debited to the profit and loss account of the previous

year in respect of which the deduction under this section is to be allowed and credited to a reserve

account (to be called the "Foreign Projects Reserve Account") to be utilised by the assessee during

a period of five years next following for the purposes of his business other than for distribution by

way of dividends or profits ;

(iii) an amount equal to such percentage of the profits and gains as is referred to in sub-section (1) in

relation to the relevant assessment year is brought by the assessee in convertible foreign exchange

into India, in accordance with the provisions of the Foreign Exchange Management Act, 1999 (42

of 1999), and any rules made thereunder, within a period of six months from the end of the

previous year referred to in clause (ii) or, within such further period as the competent authority

may allow in this behalf :

Provided that where the amount credited by the assessee to the Foreign Projects Reserve Account in

pursuance of clause (ii) or the amount brought into India by the assessee in pursuance of clause (iii) or each

of the said amounts is less than such percentage of the profits and gains as is referred to in sub-section (1) in

relation to the relevant assessment year, the deduction under that sub-section shall be limited to the amount

so credited in pursuance of clause (ii) or the amount so brought into India in pursuance of clause (iii),

whichever is less.

Explanation.—For the purposes of clause (iii), the expression "competent authority" means the Reserve

Bank of India or such other authority as is authorised under any law for the time being in force for regulating

payments and dealings in foreign exchange.

(4) If at any time before the expiry of five years from the end of the previous year in which the deduction

under sub-section (1) is allowed, the assessee utilises the amount credited to the Foreign Projects Reserve

Account for distribution by way of dividends or profits or for any other purpose which is not a purpose of

the business of the assessee, the deduction originally allowed under sub-section (1) shall be deemed to have

been wrongly allowed, and the Assessing Officer may, notwithstanding anything contained in this Act,

recompute the total income of the assessee for the relevant previous year and make the necessary

amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years

specified in sub-section (7) of that section being reckoned from the end of the previous year in which the

money was so utilised.

(5) Notwithstanding anything contained in any other provision of this Chapter under the heading

"C.—Deductions in respect of certain incomes", no part of the consideration or of the income comprised in

the consideration payable to the assessee for the execution of a foreign project referred to in clause (a) of

sub-section (1) or of any work referred to in clause (b) of that sub-section shall qualify for deduction for any

assessment year under any such other provision.

Function in the statutory architecture

Section 80HHB allowed an Indian company or a resident non-corporate assessee a deduction from the profits and gains of executing a foreign project, or work forming part of one, under a contract with a foreign Government, a foreign public authority or a foreign enterprise. A "foreign project" means construction of a building, road, dam, bridge or other structure outside India, assembly or installation of machinery or plant outside India, or other prescribed work. The consideration had to be payable in convertible foreign exchange. The deduction was forty, thirty, twenty and ten per cent for assessment years 2001-02 to 2004-05 respectively, and no deduction is allowed for assessment year 2005-06 or any later year.

Operative consequences

Separate accounts, an audit report (for assessees other than Indian companies and co-operatives) and an accountant's certificate had to accompany the return.
The deductible amount had to be credited to a "Foreign Projects Reserve Account" for business use within five years and brought into India in convertible foreign exchange within six months; the deduction was limited to the lower amount credited or brought in.
If the reserve was used for dividends or non-business purposes within five years, the deduction was deemed wrongly allowed and the income recomputed under s. 154 (s. 80HHB(4)).

Status

Expired. By sub-section (1) no deduction is allowed from assessment year 2005-06. The Finance Act, 2026 does not amend s. 80HHB.

The Income-tax Act, 1961 governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject, there is no corresponding provision.

Case Laws & Commentary

SECTION 80HHB — DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM PROJECTS OUTSIDE INDIA

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

STATUTORY SCHEME (editorial summary — verbatim bare-Act text in the companion Block-1 file)

Marginal heading: Deduction in respect of profits and gains from projects outside India.

Section 80HHB allowed an Indian company, or a non-corporate resident, a deduction in respect of profits and gains derived from the business of execution of a foreign project (a construction/assembly/works project outside India) or from works connected with such a project, subject to the foreign-exchange remittance and reserve-creation conditions (the deductible profits had to be brought into India in convertible foreign exchange and a prescribed reserve maintained). The deduction has been phased out.

A. SECTION COMMENTARY

A.1 Structural position

Section 80HHB was a foreign-exchange-earning incentive for Indian contractors executing projects abroad, part of the cluster of export/forex incentives in heading 'C'. It is spent.

A.2 Provision taxonomy

A deduction (a percentage of the foreign-project profits) conditioned on repatriation of the consideration in convertible foreign exchange within the prescribed period and on the creation/utilisation of a prescribed reserve.

A.3 Core doctrinal themes

The operative conditions are the foreign-project character, the convertible-foreign-exchange repatriation and the reserve. The 'derived from' nexus and the section 80AB net-income discipline apply.

A.4 Legislative evolution / FA amendment trail

Inserted by the Finance Act, 1982; phased out (the foreign-project incentive was wound down with the other export incentives). Not amended by the Finance Act, 2026.

A.5 CA practitioner pointers

(1) The repatriation-in-foreign-exchange and reserve conditions are the usual points of dispute. (2) Apply the 'derived from' nexus to foreign-project receipts. (3) Relevant only for open legacy assessments.

B. FA 2026 IMPACT NOTE

Section 80HHB is NOT amended by the Finance Act, 2026 and is spent.

C. CASE LAW — CLUSTERED BY ISSUE

Cluster C-1 : Forex-repatriation and reserve conditions

Statutory conditions and shared nexus jurisprudence

Facts: An Indian contractor executes a project abroad and seeks the deduction.

Issue: What governs eligibility and quantum.

Held: Eligibility turns on the foreign-project character, repatriation of the consideration in convertible foreign exchange within the prescribed period and the reserve requirement; quantum is governed by the 'derived from' nexus and the section 80AB net-income discipline.

Ratio: The deduction is conditional on forex repatriation and the reserve, and is confined to profits with the requisite nexus to the foreign project.

Relevance: States the operative conditions for the spent provision; reported litigation is limited and the section 80HH/80AB principles supply the interpretive framework.

Editorial note on sourcing

Editorial scheme summary prepared from the Income-tax Act, 1961 as amended by the Finance Act, 2025, read with the Finance Act, 2026; verbatim bare-Act text is carried in the companion Block-1 treatise file. These sections are spent / phased out for current assessment years but carry heavy legacy litigation; the digested authorities are reported Supreme Court / High Court decisions verified against standard law reports (ITR/Taxman/CTR) and remain the governing law for the open assessments and for the cognate 'derived from' / netting principles applied across Chapter VIA.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 80HHB — profits from foreign projects; no deduction from assessment year 2005-06	No corresponding provision in the Income-tax Act, 2025