Section 80HHB: Deduction for Profits from Projects Outside India
Section 80HHB of the Income-tax Act, 1961 dealt with a deduction for specified profits earned by eligible Indian residents from executing foreign projects or work forming part of a foreign project. The provision is now mainly of historical and legacy-assessment relevance.
What did Section 80HHB cover?
Under the Income-tax Act, 1961, Section 80HHB applied where the gross total income of an assessee included profits and gains derived from specified business connected with a foreign project. The eligible assessee was an Indian company or a person other than a company who was resident in India.
The business had to involve either the execution of a foreign project undertaken by the assessee under a contract, or the execution of work forming part of a foreign project undertaken by another person. The relevant contract was with the government of a foreign State, a statutory or other public authority or agency in a foreign State, or a foreign enterprise. The consideration for the project or work was required to be payable in convertible foreign exchange.
Historical deduction rates under Section 80HHB
| Assessment year beginning | Deduction from qualifying profits |
|---|---|
| 1 April 2001 | 40% |
| 1 April 2002 | 30% |
| 1 April 2003 | 20% |
| 1 April 2004 | 10% |
| 1 April 2005 and later assessment years | No deduction |
This phase-out is important when reading the provision today. Although the statutory text remained useful for older matters, the section did not provide an operative deduction for AY 2005-06 onwards.
Important definitions under Section 80HHB
Convertible foreign exchange
For Section 80HHB, this meant foreign exchange treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 and the rules made under it.
Foreign project
A foreign project included a project for construction of a building, road, dam, bridge or other structure outside India; assembly or installation of machinery or plant outside India; or such other prescribed work.
Competent authority
For the requirement concerning bringing foreign exchange into India, the competent authority meant the Reserve Bank of India or another authority authorised under the law in force to regulate payments and dealings in foreign exchange.
Conditions that applied to the deduction
For the years in which the deduction was available, Section 80HHB imposed compliance conditions. These included maintaining separate accounts for the profits and gains of the foreign project or relevant work. Where applicable, the accounts had to be audited by an accountant within the meaning then used in Section 288, and the prescribed audit report and accountant's certificate had to be furnished in accordance with the provision.
The assessee was also required to credit the prescribed proportion of qualifying profits to a Foreign Projects Reserve Account and to bring the corresponding amount into India in convertible foreign exchange within six months from the end of the relevant previous year, or within a further period permitted by the competent authority. If the amount credited to the reserve or brought into India was lower than the prescribed percentage, the deduction was limited to the lower amount.
Foreign Projects Reserve Account
The amount credited to the Foreign Projects Reserve Account was required to be used during the next five years for the purposes of the assessee's business and not for distribution as dividends or profits. If the reserve was used within the specified period for dividends, profits or another non-business purpose, the deduction originally allowed could be treated as wrongly allowed and the assessment could be recomputed under the mechanism provided in Section 80HHB(4), read with the then applicable Section 154.
No double deduction for the same foreign-project income
Section 80HHB(5) prevented the same consideration or income from qualifying for another deduction under the other provisions in the relevant Chapter VI-A category for the same assessment year. The object was to prevent overlapping deductions on the same foreign-project receipts.
Current position under the Income-tax Act, 2025
The Income-tax Act, 2025 came into force on 1 April 2026. The Income Tax Department provides the new Act and a utility for checking provisions of the 1961 Act against the 2025 Act. Section 80HHB has no operative role as a current foreign-project deduction: even under its own 1961 Act text, the deduction had ended from AY 2005-06 onward.
For current tax compliance, use the provisions of the Income-tax Act, 2025 and the Income-tax Rules, 2026. For disputes, reassessments, appeals or other proceedings relating to earlier periods, the applicable transition and savings provisions should be checked together with the law governing the relevant period.
Official references
- Income Tax Department - Section 80HHB under the Income-tax Act, 1961
- Income Tax Department - Income-tax Act, 2025 and comparison utilities
- CBDT - Income-tax Act, 2025 comes into force from 1 April 2026
- Reserve Bank of India
Last reviewed: 28 September 2026. This page explains a historical deduction and should be read with the law applicable to the relevant assessment or tax year.