Section 44BBB: Presumptive Taxation of Foreign Companies in Turnkey Power Projects
Section 44BBB of the Income-tax Act, 1961 provided a special method of computing business income for foreign companies engaged in specified work on Central Government-approved turnkey power projects. The presumptive profit was 10% of qualifying amounts paid or payable.
What does Section 44BBB mean?
The section applied specifically to an assessee that is a foreign company carrying on civil construction, erection of plant or machinery, or testing or commissioning of that plant or machinery in connection with a turnkey power project approved by the Central Government. It did not automatically cover all foreign construction contractors, all power-sector contracts or all overseas suppliers.
Foreign company is a company that is not a domestic company under the applicable income-tax definitions. A turnkey power project generally involves delivery of an integrated, ready-to-operate power facility; eligibility under this section turns on the precise statutory activity and required approval. The earlier condition concerning financing under an international aid programme was removed with effect from 1 April 2004.
Presumptive income: 10% of specified project receipts
Under subsection (1), business profits were deemed to equal 10% of amounts paid or payable to the foreign company, or a person acting on its behalf, for qualifying civil construction, erection, testing or commissioning work. The location of payment, inside or outside India, did not by itself remove a qualifying amount from the calculation.
The 10% figure is a profit-computation rate, not a final tax rate. The ultimate tax liability depends on the tax law for the relevant year, treaty entitlement, withholding, surcharge and cess, as applicable. Contract terms, allocation of receipts and the scope of services should be examined before applying the provision.
Section 44BBB explained, subsection by subsection
Subsection (1): qualifying foreign company and project income
It overrides the ordinary computation rules referred to in sections 28 to 44AA for specified turnkey-power-project activities and deems 10% of the qualifying payments to be taxable business profits. The relevant project must have the necessary Central Government approval.
Subsection (2): claiming lower actual profits
A foreign company claiming profits below the statutory 10% benchmark could use the lower-profit route only if it maintained the books and documents prescribed by section 44AA(2), had the accounts audited and submitted the audit report under section 44AB. The Assessing Officer would then assess the income or loss under section 143(3). The lower amount was not automatically accepted simply because it was declared.
Subsection (3): restriction on loss and depreciation set-off
Inserted by the Finance Act, 2023 with effect from 1 April 2024, this subsection barred set-off of unabsorbed depreciation under section 32(2) and brought-forward business loss under section 72(1) against income declared under subsection (1) for the relevant previous year. This is an important update missing from older reproductions of section 44BBB.
Illustration: computing presumptive income
| Particulars | Illustrative amount |
|---|---|
| Eligible turnkey power project contract receipts | Rs. 12 crore |
| Presumptive rate | 10% |
| Deemed business profit | Rs. 1.20 crore |
The Rs. 1.20 crore is the illustrative business-income figure, not the tax payable. This assumes the full Rs. 12 crore qualifies and that the taxpayer uses the presumptive method under the 1961 Act for an applicable period.
Related provisions and practical compliance
Section 44B concerns non-resident shipping income, while section 44BB addresses specified mineral-oil services. Section 44BBA covers non-resident aircraft operations. These are distinct regimes and should not be interchanged.
Before filing, review the approval for the project, the scope and dates of the contract, invoices and payment records, any double taxation avoidance agreement (DTAA), and the relevant withholding and return-filing obligations. Tax-treaty outcomes depend on the treaty text and factual circumstances.
Income-tax Act, 2025: position from 1 April 2026
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, subject to transitional and savings provisions. Section 61 of the new Act consolidates presumptive computation for certain non-resident businesses, including specified foreign-company work on approved turnkey power projects. Read the new section and its applicable conditions directly rather than assuming that every procedural cross-reference from section 44BBB carries over unchanged.
Official legislation and guidance
- Income Tax Department: Section 44BBB text (1961 Act, amended)
- Income Tax Department: Business or Profession guidance
- Income Tax Department: laws, circulars and publications
- India Code: official central legislation
- e-Gazette: notified legislation and amendments
- Income-tax e-Filing portal
Frequently asked questions
What is Section 44BBB of the Income-tax Act, 1961?
It prescribed presumptive business income at 10% of specified amounts payable to qualifying foreign companies for approved turnkey power projects.
Does the 10% rate mean a 10% income-tax rate?
No. It is a deemed profit percentage, not the applicable tax rate. Tax is calculated on taxable income under the applicable provisions.
Can a foreign company declare less than 10% profit?
Under section 44BBB(2), lower profits could be claimed by maintaining the prescribed books, obtaining an audit under section 44AB and undergoing assessment.
Are brought-forward losses deductible from the presumptive profit?
Section 44BBB(3), effective from 1 April 2024, prohibited set-off of brought-forward business losses and unabsorbed depreciation when income was declared under subsection (1).
Which law applies from 1 April 2026?
The Income-tax Act, 2025 applies from 1 April 2026; its section 61 addresses presumptive income from specified non-resident business activities. The 1961 Act remains relevant for earlier periods and transitional matters.
Original statutory extract and amendment notes
The following material is retained from the earlier webpage as a historical reference. It is not a complete consolidated text: in particular, the original extract omitted subsection (3), introduced with effect from 1 April 2024. Consult the official amended text above for authoritative wording.
View original Section 44BBB extract and historical notes
1 ,2 (1) Notwithstanding anything to the contrary contained insections 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf 3 ***, a sum equal to ten per cent. of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession".
4 (2) Notwithstanding anything contained in sub-section (1), an assessee may
claim lower profits and gains than the profits and gains specified in that
sub-section, if he keeps and maintains such books of account and other documents
as required under sub-section (2) of section 44AA and gets his accounts audited
and furnishes a report of such audit as required under section 44AB, and
thereupon the Assessing Officer shall proceed to make an assessment of the total
income or loss of the assessee under sub-section (3) of section 143 and
determine the sum payable by, or refundable to, the assessee.
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1. Ins. by Act 13 of 1989, s. 10 (w.e.f. 1-4-1990).
2. The existing section numbered as sub-section (1) thereof by Act 32 of 2003,
s. 26 (w.e.f. 1-4-2004).
3. The words "and financed under any international aid programme" omitted by s.
26, ibid. (w.e.f. 1-4-2004).
4. Ins. by s. 26, ibid. (w.e.f. 1-4-2004).
This article provides general legal information, not advice for a particular transaction. Verify the law and relevant tax year before relying on it.