Section 10C of Income Tax Act: The Rare Tax Holiday That Gave Industries a Fresh Start

The Income Tax Act, 1961, is full of provisions that encourage economic growth, social welfare, and regional development. Among them, Section 10C of Income Tax Act stands out for its role in supporting industrial units in the North-Eastern Region of India and providing relief to employees opting for voluntary retirement. It is one of those provisions designed not just for revenue collection but also to fuel balanced development and give individuals much-needed financial security.

Let us break down the meaning, scope, and benefits of Section 10C, while also looking at its practical implications for businesses and employees.

What is Section 10C of Income Tax Act?

At its core, Section 10C of the Income Tax Act contains special provision in respect of certain industrial undertakings in North-Eastern Region. It gives tax exemption on profits & gains derived by industries set up in this geographically and economically sensitive zone. The objective was simple—promote industrialization in a region that often lagged behind due to terrain, infrastructure challenges, and limited access to investment."

At the same time, the section also extends to individuals, particularly employees. It allows for the exemption of amount received on voluntary retirement under approved schemes, making the retirement journey smoother and tax-friendly.

Scope of Section 10C – Industries in North-Eastern Region

India’s North-Eastern states have historically faced challenges in attracting industries due to distance, logistics, and political sensitivities. To address this, the government offered special provisions under Section 10C.

• Certain notified undertakings in this region can claim 100% exemption on profits and gains for a specified number of years.
• This exemption acts as an incentive for companies to set up factories, processing units, and service facilities in states like Assam, Meghalaya, Manipur, Nagaland, Mizoram, Arunachal Pradesh, Sikkim, and Tripura.
• The tax benefit ensures industrial growth, creates jobs, and integrates the region more effectively with the national economy.

This provision is an excellent example of how taxation can be used as a development tool rather than just a revenue source.

Also Read: The Retirement Payout Exemption You Can’t Afford to Ignore

Voluntary Retirement and Section 10C

Apart from industries, Section 10C of the Act also extends relief to individuals, particularly salaried employees. Many companies introduce Voluntary Retirement Schemes (VRS) to reduce workforce size, manage costs, or restructure. For employees, the lump sum received on retirement could have been a tax burden.

Thankfully, Section 10C allows exemption of amount received on voluntary retirement, subject to certain conditions. This exemption ensures:

• Employees opting for VRS are not overburdened with taxes.
• They can use their savings to secure their future, invest, or plan for retirement peacefully.
• The scheme acts as a compassionate tool to balance company needs with employee welfare.

Eligibility Criteria for Tax Exemption under Section 10C

For Industrial Undertakings:

1. The business must be located in one of the notified North-Eastern states."
2. It should fall under categories eligible for deduction as per government notification.
3. Profits & gains must arise directly from the industrial activity.

For Employees:

1. The individual must retire under a properly approved Voluntary Retirement Scheme.
2. The amount received on voluntary retirement should comply with prescribed limits.
3. The exemption is allowed only once in a lifetime.

Thus, eligible for a tax exemption on its profits & gains applies both to industries in special regions and employees under VRS.

Why Section 10C Matters for India

1. Regional Development – It bridges the gap between developed & underdeveloped states.
2. Job Creation – By incentivizing industries, it boosts employment in remote regions.
3. Employee Relief – Protects employees from sudden tax shocks when opting for voluntary retirement.
4. Encourages Investments – Tax exemptions often attract big players to otherwise ignored geographies.

In short, Section 10C of Income Tax Act is not just a legal provision, but a socio-economic tool for inclusive growth.

Also Read: Tax-Free Benefits from Provident Funds and Sukanya Samriddhi Account

Practical Example – Industrial Undertaking

Suppose a tea processing unit is set up in Assam. Normally, its profits would be subject to corporate tax. But since it is located in the North-Eastern Region, it can claim special exemption on profits under Section 10C. This makes the business more viable & competitive, while also encouraging others to follow suit."

Practical Example – Voluntary Retirement

Consider Mr. Sharma, a senior employee of a PSU, who opts for a Voluntary Retirement Scheme. He receives ₹12 lakh as compensation. Under Section 10C, this amount qualifies for exemption up to the prescribed limit. As a result, Mr. Sharma’s taxable income reduces drastically, giving him more financial stability in retirement.

Key Takeaways from Section 10C

• It offers a dual benefit: one for industries, another for individuals.
• Focuses on North-Eastern regional growth.
• Provides VRS tax relief for employees.
• Ensures both corporate & personal financial planning get a tax cushion.

Challenges and Limitations

• The exemption is limited to notified industries & regions only.
• Employees can avail VRS exemption only once.
• Some critics argue that over-reliance on exemptions may reduce tax collections.

However, when balanced with the overall goal of development, Section 10C continues to play an important role."

Also Read: Tax Deductions for SEZ Units

Conclusion

Section 10C of Income Tax Act reflects the government’s commitment to both regional development and employee welfare. By allowing special provision in respect of certain industrial undertakings in North-Eastern Region and the exemption of amount received on voluntary retirement, it balances economic growth with social security. Whether you are a business looking to expand into the North-East or an employee evaluating VRS, knowing your eligibility for tax exemption on profits and gains can save you a significant amount of tax.

✅ If you’re unsure how to claim these exemptions or want expert guidance for ITR filing, connect with us at Callmyca.com — where tax meets simplicity.