Section 145 Income Tax Act 2025: Who Can Claim Waste Processing Deduction?

Section 145 allows a deduction of 100% of eligible business profits for five consecutive tax years where an assessee collects and processes or treats bio-degradable waste for specified purposes. This guide explains the qualifying activities, duration, calculation and practical documentation.

What does Section 145 of the Income-tax Act, 2025 provide?

Where an assessee's gross total income includes profits and gains derived from the business of collecting and processing or treating bio-degradable waste for one or more specified purposes, Section 145 allows a deduction equal to the whole amount of those eligible profits and gains. The deduction runs for five consecutive tax years, starting with the tax year in which that business commences.

This provision broadly carries forward the incentive previously contained in Section 80JJA of the Income-tax Act, 1961. It is a deduction from qualifying profits, not a grant, a tax credit or an exemption of the business's entire turnover.

Which waste-processing businesses qualify?

The statutory activity must involve collecting and processing or treating bio-degradable waste for any of these specified purposes:

• Generating power.
• Producing bio-fertilizers, bio-pesticides or other biological agents.
• Producing bio-gas.
• Making pellets or briquettes for fuel or organic manure.

The statutory test focuses on profits derived from the qualifying business. Merely dealing in waste, selling equipment or providing unrelated consultancy does not automatically establish eligibility. The actual operations and their connection to the specified outputs matter.

How much deduction is available and for how long?

Deduction rate: 100% of profits and gains derived from the eligible business, subject to the applicable computation and deduction provisions.

Duration: Five consecutive tax years, beginning with the tax year in which the qualifying business commences. The provision does not allow the assessee to select any five non-consecutive years or restart the period merely because the statute changed.

If a qualifying business started before 1 April 2026, review its commencement date and earlier claims to identify any remaining eligible years under the transition and savings provisions. Do not assume a fresh five-year window begins in 2026.

What do the important statutory terms mean?

Assessee

The person whose income is assessed under the income-tax law. Section 145 uses the general expression "assessee" and does not expressly restrict the benefit to companies alone.

Gross total income

The aggregate income determined under the Act before the applicable Chapter VIII deductions, subject to the Act's computation and set-off rules. The eligible profits must form part of that income.

Bio-degradable waste

Section 145 does not set out a separate exhaustive definition of this expression. In its ordinary technical sense, it refers to waste capable of decomposition through biological processes. Classification of a particular waste stream should be supported by its nature and processing records.

Tax year

Under Section 3 of the Income-tax Act, 2025, a tax year generally means the twelve-month period beginning on 1 April, subject to the statutory rules for businesses or sources commencing during a year.

Profits derived from the eligible business

These are profits sufficiently connected with the specified collection and processing or treatment operations. Separately earned or incidental receipts should be examined before including them in the deduction calculation.

How should the claim be calculated and documented?

• Record the date on which the qualifying business actually commenced.
• Maintain evidence of waste collection, treatment or processing and the specified end products.
• Keep invoices, output and production registers, contracts and applicable regulatory permissions.
• Maintain a defensible computation of eligible business receipts, directly attributable expenses and allocated common expenses.
• Identify other income separately and verify applicable return, audit and deduction-claim requirements for the relevant tax year.
• Check that the same profits are not deducted twice under overlapping provisions.

Section 145 itself does not prescribe a special certification form or a standalone turnover ceiling. Other generally applicable return, audit and deduction rules may nevertheless affect a claim.

Illustration: 100% deduction for an eligible bio-gas business

Assume an assessee commences a qualifying business of collecting and treating bio-degradable waste to produce bio-gas in tax year 2026-27. Its eligible receipts are Rs 80 lakh and properly attributable expenses are Rs 55 lakh. Subject to the Act's computation rules, the eligible business profit is Rs 25 lakh.

Illustrative Section 145 deduction: Rs 25 lakh. The five consecutive tax years would ordinarily be 2026-27 through 2030-31. This illustration assumes the entire computed profit is derived from qualifying operations and that no other limitation changes the result.

Frequently asked questions

Is the deduction available for producing bio-gas?

Yes. Producing bio-gas through the qualifying collection and processing or treatment of bio-degradable waste is expressly listed in Section 145.

Is the deduction 100% of turnover?

No. It is 100% of eligible profits and gains, not gross sales or turnover.

Can a new business claim for ten years?

No. Section 145 specifies five consecutive tax years beginning with the commencement tax year.

Does every waste management company qualify?

No. The company or other assessee must satisfy the qualifying activity and profit-derivation requirements of the provision.

Is Section 145 of the 2025 Act about accounting methods?

No. The accounting-method provision was Section 145 of the 1961 Act; the corresponding provision under the 2025 Act is Section 276.

Official statutory sources

Income-tax Act, 2025 as amended by the Finance Act, 2026 - Income Tax Department

Income-tax Act, 2025 - official legislative resources

Section 80JJA of the Income-tax Act, 1961 - historical corresponding provision

Updated: 10 November 2026. This article is a general explanation; apply the statutory text and rules relevant to the tax year and facts of each case.