Section 80HHD — Tourism Foreign Exchange (Legacy)

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Deduction in respect of earnings in convertible foreign exchange.

80HHD. (1) Where an assessee, being an Indian company or a person (other than a company) resident in

India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authority in this

behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be

allowed, in computing the total income of the assessee—

(a) for an assessment year beginning on the 1st day of April, 2001, a deduction of a sum equal to the

aggregate of—

(i) forty per cent of the profits derived by him from services provided to foreign tourists; and

(ii) so much of the amount not exceeding forty per cent of the profits referred to in sub-clause

(i) as is debited to the profit and loss account of the previous year in respect of which the

deduction is to be allowed and credited to a reserve account to be utilised for the purposes

of the business of the assessee in the manner laid down in sub-section (4);

(b) for an assessment year beginning on the 1st day of April, 2002, a deduction of a sum equal to the

aggregate of—

(i) thirty per cent of the profits derived by him from services provided to foreign tourists; and

(ii) so much of the amount not exceeding thirty per cent of the profits referred to in sub-clause

(i) as is debited to the profit and loss account of the previous year in respect of which the

deduction is to be allowed and credited to a reserve account to be utilised for the purposes

of the business of the assessee in the manner laid down in sub-section (4);

(c) for an assessment year beginning on the 1st day of April, 2003, a deduction of a sum equal to the

aggregate of—

(i) twenty-five per cent of the profits derived by him from services provided to foreign

tourists; and

(ii) so much of the amount not exceeding twenty-five per cent of the profits referred to in

sub-clause (i) as is debited to the profit and loss account of the previous year in respect of

which the deduction is to be allowed and credited to a reserve account to be utilised for the

purposes of the business of the assessee in the manner laid down in sub-section (4);

(d) for an assessment year beginning on the 1st day of April, 2004, a deduction of a sum equal to the

aggregate of—

(i) fifteen per cent of the profits derived by him from services provided to foreign tourists; and

(ii) so much of the amount not exceeding fifteen per cent of the profits referred to in

sub-clause (i) as is debited to the profit and loss account of the previous year in respect of

which the deduction is to be allowed and credited to a reserve account to be utilised for the

purposes of the business of the assessee in the manner laid down in sub-section (4),

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 a hotel or, as the case may be, a tour operator approved by the prescribed authority on or

after the 30th day of November, 1989 and before the 1st day of October, 1991, shall be deemed to have

been approved by the prescribed authority for the purposes of this section in relation to the assessment year

commencing on the 1st day of April, 1989 or the 1st day of April, 1990 or, as the case may be, the 1st day of

April, 1991 if the assessee was engaged in the business of such hotel or as such tour operator during the

previous year relevant to any of the said assessment years.

(2) This section applies only to services provided to foreign tourists the receipts in relation to which are

received in, or brought into, India by the assessee in convertible foreign exchange within a period of six

months from the end of the previous year or, within such further period as the competent authority may

allow in this behalf.

Explanation 1.—For the purposes of this sub-section, any payment received by an assessee, engaged in the

business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of

foreign exchange brought into India through an authorised dealer, from another hotelier, tour operator or

travel agent, as the case may be, on behalf of a foreign tourist or group of foreign tourists, shall be deemed

to have been received by the assessee in convertible foreign exchange if the person making the payment

furnishes to the assessee a certificate specified in sub-section (2A).

Explanation 2.—For the purposes of this sub-section, 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.

(2A) Every person making payment to an assessee referred to in the Explanation 1 to sub-section (2) out of

Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist

or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the

amount received in foreign exchange, its conversion into Indian currency and such other particulars as may

be prescribed.

(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the

amount which bears to the profits of the business (as computed under the head "Profits and gains of business

or profession") the same proportion as the receipts specified in sub-section (2) as reduced by any payment,

referred to in sub-section (2A), made by the assessee bear to the total receipts of the business carried on by

the assessee.

(4) The amount credited to the reserve account under clause (b) of sub-section (1), shall be utilised by the

assessee before the expiry of a period of five years next following the previous year in which the amount

was credited for the following purposes, namely :—

(a) construction of new hotels approved by the prescribed authority in this behalf or expansion of

facilities in existing hotels already so approved;

(b) purchase of new cars and new coaches by tour operators already so approved or by travel agents;

(c) purchase of sports' equipment for mountaineering, trekking, golf, river-rafting and other sports in or

on water;

(d) construction of conference or convention centres;

(e) provision of such new facilities for the growth of Indian tourism as the Central Government may,

by notification in the Official Gazette, specify in this behalf;

(f) subscription to equity shares forming part of any eligible issue of capital made by a public

company:

Provided that where any of the activities referred to in clauses (a) to (f) would result in creation of any asset

owned by the assessee outside India, such asset should be created only after obtaining prior approval of the

prescribed authority.

(5) Where any amount credited to the reserve account under clause (b) of sub-section (1),—

(a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so

utilised; or

(b) has not been utilised in the manner specified in sub-section (4), the amount not so utilised,

shall be deemed to be the profits,—

(i) in a case referred to in clause (a), in the year in which the amount was so utilised; or

(ii) in a case referred to in clause (b), in the year immediately following the period of five years

specified in sub-section (4),

and shall be charged to tax accordingly.

(5A) Where any amount credited to the reserve account under clause (b) of sub-section (1) has been utilised

for subscription to any equity shares referred to in clause (f) of sub-section (4) and either whole or any part

of such equity shares are transferred or converted into money by the assessee at any time within a period of

three years from the date of their acquisition, the aggregate amount so utilised in respect of such equity

shares shall be deemed to be the profits of the previous year in which the equity shares are transferred or

converted into money.

Explanation.—A person shall be treated as having acquired any shares on the date on which his name is

entered in relation to those shares in the register of members of the public company.

(6) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the

prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation

below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of

the amount of convertible foreign exchange received by the assessee for services provided by him to foreign

tourists, payments made by him to any assessee referred to in sub-section (2A) and the payments received

by him in Indian currency as referred to in the Explanation 1 to sub-section (2).

(7) Where a deduction under sub-section (1) is claimed and allowed in respect of profits derived from the

business of a hotel, such part of profits shall not qualify to that extent for deduction for any assessment year

under any other provisions of this Chapter under the heading "C.—Deductions in respect of certain

incomes", and shall in no case exceed the profits and gains of such hotel.

Explanation.—For the purposes of this section,—

(a) "travel agent" means a travel agent or other person (not being an airline or a shipping company)

who holds a valid licence granted by the Reserve Bank of India under section 32 of the Foreign

Exchange Management Act, 1999 (42 of 1999);

(b) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the

Explanation to section 80HHC;

(c) "services provided to foreign tourists" shall not include services by way of sale in any shop owned

or managed by the person who carries on the business of a hotel or of a tour operator or of a travel

agent;

(d) "authorised dealer", "foreign exchange" and "Indian currency" shall have the meanings

respectively assigned to them in clauses (b), (h) and (k) of section 2 of the Foreign Exchange

Management Act, 1999 (42 of 1999);

(e) "eligible issue of capital" means an issue made by a public company formed and registered in India

and the entire proceeds of the issue is utilised wholly and exclusively for the purpose of carrying on

the business of—

(i) setting up and running of new hotels approved by the prescribed authority; or

(ii) providing such new facility for the growth of tourism in India, as the Central Government

may, by notification in the Official Gazette, specify.

Function in the statutory architecture

Section 80HHD allowed an Indian company, or a person (other than a company) resident in India, engaged in the business of a hotel or of a tour operator approved by the prescribed authority, or of a travel agent, a deduction from the profits derived from services provided to foreign tourists. Only receipts brought into India in convertible foreign exchange within six months from the end of the previous year (or a further period allowed by the competent authority) counted.

The deduction was forty per cent of those profits for assessment year 2001-02, plus up to an equal amount credited to a reserve account, falling to thirty, twenty-five and fifteen per cent for 2002-03 to 2004-05. Sub-section (1) states that "no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year".

Operative consequences

The qualifying profits were the proportion of business profits that the convertible foreign exchange receipts (as reduced by payments to other hoteliers or agents under sub-section (2A)) bore to total business receipts (sub-section (3)).
The reserve had to be used within five years for the purposes in sub-section (4), such as new approved hotels, cars and coaches, or an eligible issue of capital; money used otherwise, or left unused, was deemed to be profits and charged to tax (sub-section (5)); shares bought from the reserve and transferred within three years were similarly deemed profits (sub-section (5A)).
The claim required an accountant's report with the return (sub-section (6)), and hotel profits allowed here could not qualify again under heading C of Chapter VI-A (sub-section (7)).

Status

Not operative for assessment year 2026-27: by its own terms the section gives no deduction for assessment year 2005-06 or later, so it has expired. The Finance Act, 2026 does not amend this section.

The 1961 Act governs assessment year 2026-27 and earlier years; the Income-tax Act, 2025 governs tax year 2026-27 onwards, and for this subject the 2025 Act has no corresponding provision. Under s. 536(2) of the 2025 Act, the repeal does not affect the previous operation of the 1961 Act or anything duly done under it.

Case Laws & Commentary

SECTION 80HHD — DEDUCTION IN RESPECT OF EARNINGS IN CONVERTIBLE FOREIGN EXCHANGE (HOTELS AND TOUR OPERATORS)

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 earnings in convertible foreign exchange.

Section 80HHD allowed an Indian company, or a non-corporate resident, engaged in the business of a hotel or of a tour operator approved by the prescribed authority, or of a travel agent, a deduction in respect of earnings in convertible foreign exchange from services provided to foreign tourists, subject to a reserve-creation and utilisation condition and to repatriation of the earnings in convertible foreign exchange within the prescribed period. The deduction has been phased out.

A. SECTION COMMENTARY

A.1 Structural position

Section 80HHD was the tourism-sector foreign-exchange incentive, rewarding hotels, approved tour operators and travel agents for forex earnings from foreign tourists. It is spent.

A.2 Provision taxonomy

A deduction on convertible-foreign-exchange earnings from services to foreign tourists, conditioned on repatriation within the prescribed period and on the creation and proper utilisation of a reserve (for specified purposes such as new hotels / tour infrastructure), with a charge on misutilisation.

A.3 Core doctrinal themes

The operative conditions are the convertible-foreign-exchange earning, the repatriation period, and the reserve creation/utilisation (and the consequences of non-utilisation). The 'derived from'/net-income principles apply to quantum.

A.4 Legislative evolution / FA amendment trail

Inserted by the Finance Act, 1988; phased out with the export/forex incentives. Not amended by the Finance Act, 2026.

A.5 CA practitioner pointers

(1) The reserve creation and its utilisation within the prescribed period are the usual points of dispute; misutilisation triggers a charge. (2) Confirm receipts are in convertible foreign exchange and repatriated in time. (3) Relevant only for open legacy assessments.

B. FA 2026 IMPACT NOTE

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

C. CASE LAW — CLUSTERED BY ISSUE

Cluster C-1 : Forex-earning and reserve conditions

Statutory conditions and shared net-income jurisprudence

Facts: A hotel / approved tour operator earns convertible foreign exchange from foreign tourists and claims the deduction.

Issue: What governs eligibility and quantum.

Held: Eligibility turns on the convertible-foreign-exchange earning, timely repatriation and the reserve creation/utilisation condition; quantum follows the net-income discipline; misutilisation of the reserve attracts a charge to tax.

Ratio: A conditional forex-earning deduction with a reserve mechanism and a clawback on misutilisation.

Relevance: States the operative conditions for the spent provision; the general profit-linked 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. 80HHD — deduction for hotels, approved tour operators and travel agents on profits from services to foreign tourists	No corresponding provision in the Income-tax Act, 2025
s. 80HHD(4), (5), (5A) — reserve account, its utilisation and the deemed-profit charge	No corresponding provision in the Income-tax Act, 2025; the previous operation of the 1961 Act is saved by s. 536(2)