The approval and activity tests come first
A foreign company performing covered work for a Central Government-approved turnkey power project must examine section 61(2), Table serial 4, of the Income-tax Act, 2025. The deemed business-profit measure is 10% of covered amounts paid or payable, including payments outside India and payments to another person on its behalf. That percentage measures profit, not the final income-tax liability. This article concerns tax year 2026–27, beginning 1 April 2026; it does not relabel FY 2025–26 return fields with the new Act's numbers. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Build a contract-level population
The statutory activities are civil construction and erection, testing or commissioning of plant or machinery connected with the approved turnkey power project. Obtain the approval instrument and map the contract scope to it. A commercial description such as energy EPC is insufficient evidence of approval. Separate unrelated work and pure supplies requiring their own characterisation. Do not apply 10% indiscriminately to every group invoice merely because the customer operates a power plant. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Reconcile entitlement, payment and geography
Prepare a transaction register with certified work, contractual amount due, receipts, receivables and collections through agents. A covered amount remaining payable is not excluded merely because cash has not arrived. Equally, an agent's receipt and the later remittance of the same entitlement are not two different revenue items. Foreign settlement does not itself remove a covered payment. Disputed variations, advances and reimbursement characterisations require a documented legal position rather than automatic inclusion or exclusion by ledger name. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Evaluate the lower-actual claim as a compliance decision
Section 61(3) expressly provides a route for Table serials 4 and 5 where actual profits are lower. It requires the books and documents contemplated by section 62 and the audit and report required by section 63. Compare a fully reconciled project result with the deemed computation; a management margin sheet alone does not satisfy these conditions. Section 63(5) defines the specified audit date by reference to the applicable section 263(1) return due date. Establish that date and the prescribed reporting requirements for the taxpayer rather than borrowing the preceding assessment year's portal forms. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Keep the deemed and actual computations separate
For income computed under section 61(2), subsection (4) bars additional losses, allowances or deductions against that income. Do not deduct project depreciation or overheads again after applying 10%. Subsection (5) also requires the asset's written-down value to reflect depreciation as if claimed and allowed. Maintain that asset history even where depreciation does not appear as a separate deduction in the deemed profit working. A treaty analysis and tax-rate computation are separate stages; this article models neither a treaty exemption nor an effective tax rate. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Close with an auditable bridge
The file should show why the company and project qualify, which work streams were included, how paid and payable amounts reconcile and which computation route was used. Preserve reasons for exclusions and audit-report evidence where claiming lower actual profit. Review material contract changes before carrying last year's classification forward. The central control is a single classified receipt base feeding one profit computation, with unrelated income analysed independently. Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63.
Applicable primary references
Income-tax Act, 2025, as amended by Finance Act, 2026: sections 61–63
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Paid and payable components
Covered work is ₹200 lakh: ₹160 lakh received and ₹40 lakh still payable. The base is ₹200 lakh and deemed profit is ₹20 lakh, not ₹16 lakh. Collection status is a reconciliation column rather than a cash-only election.
Illustrative example 2: Foreign settlement
Covered commissioning consideration of ₹75 lakh is paid overseas to the foreign company. Assuming all eligibility conditions, deemed profit is ₹7.50 lakh. The payment location does not by itself exclude the receipt.
Illustrative example 3: Agent collection without duplication
The customer pays ₹50 lakh to an agent on the company's behalf; the agent remits the same ₹50 lakh. Count the entitlement once: ₹50 lakh × 10% = ₹5 lakh. Adding both movements would wrongly produce ₹10 lakh profit.
Illustrative example 4: Mixed work population
An approved project has ₹300 lakh of covered erection work and ₹80 lakh of unrelated consulting work. The illustrated covered component gives ₹30 lakh deemed profit. The ₹80 lakh requires a separate classification and computation; it is not treated as exempt or automatically given the same percentage.
Illustrative example 5: Lower actual result
Covered base is ₹400 lakh, making deemed profit ₹40 lakh. Properly supported actual profit is ₹28 lakh, a ₹12 lakh difference. A claim for ₹28 lakh needs section 61(3) books and audit compliance; the arithmetic alone does not establish entitlement.
Illustrative example 6: No second expense deduction
On covered amounts of ₹250 lakh, deemed profit is ₹25 lakh. A separate ₹6 lakh depreciation debit cannot reduce that deemed profit to ₹19 lakh under subsection (4). Maintain the deemed-depreciation WDV history separately.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm tax year | Separate tax year 2026–27 from AY 2026–27 return work. |
| 2 | Identify assessee | Retain foreign-company incorporation and residence records. |
| 3 | Locate approval | Match the Central Government approval to the project. |
| 4 | Read activity scope | Classify construction, erection, testing and commissioning. |
| 5 | Segregate other streams | Record the separate treatment of non-covered work. |
| 6 | Reconcile payable amounts | Tie invoices, certifications and receivables to the register. |
| 7 | Eliminate collection repeats | Match agent receipts to subsequent remittances. |
| 8 | Compare computation routes | Keep deemed profit and supported actual profit side by side. |
| 9 | Check audit evidence | Verify books, applicable report and specified date for a lower claim. |
| 10 | Close asset and tax bridges | Retain WDV history and a separate rate/treaty analysis. |
Sixteen practitioner FAQs
1. Does any power project qualify?
No. The project approval and covered activities must be established.
2. Is an Indian company within Table serial 4?
The specified taxpayer there is a foreign company.
3. Is 10% the final tax rate?
No. It determines the covered business profit.
4. Does overseas payment escape the base?
Not merely because of its location.
5. Can unpaid covered consideration matter?
Yes; the provision includes amounts payable.
6. Does an agent payment count?
A payment on the company's behalf is within the wording.
7. Should the agent's remittance be counted again?
No; trace the same entitlement to prevent duplication.
8. Is unrelated consulting automatically covered?
No. Classify it separately.
9. Can actual profit below 10% be claimed?
Section 61(3) provides a conditional lower-actual route.
10. Is an unaudited project spreadsheet sufficient?
No; the statutory books and audit conditions must be met.
11. Can depreciation be deducted after deemed profit?
Subsection (4) bars a second allowance against that deemed income.
12. Can carried losses simply be netted here?
Do not set them against section 61(2) income contrary to subsection (4).
13. Does WDV remain unchanged?
Subsection (5) requires deemed depreciation to be reflected.
14. Does this article prescribe a return form?
No. Verify the prescribed report and return for the relevant tax year.
15. Can an approval for one project be reused for another?
Only if its actual terms cover that other project; do not infer coverage.
16. What should the final review prove?
Eligibility, a non-duplicated receipt base and compliance with the selected computation route.
Conclusion
For foreign-company turnkey power projects, separate approved work receipts from other business and compare deemed profit with a properly supported lower-actual claim.