Sec 35AD: Deduction in respect of capital expenditure incurred on setting up of a specified business

Ritik Chopra | Last updated: 07 May 2021

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Quick Summary

Section 35AD offers a tax deduction for capital expenditure incurred when setting up new units for specific businesses. To qualify, the business unit must be new, the assessee's books must be audited, and the business must fall under the list of specified activities. These include cold chain facilities, warehousing for agricultural produce, pipeline networks, hotels, hospitals, slum redevelopment housing, and more.

With effect from the assessment year 2010-11, a new deduction u/s 35AD was introduced to provide an incentive to those assessees who set up new business units. The deduction is available towards any capital expenditure, wholly and exclusively, incurred for carrying on a specified business.

Conditions for claiming deduction under section 35AD

This deduction shall be available if the following conditions are satisfied :

A unit is set up in specified businesses
Unit of the specified business should be a new one.
Books of the assessee are audited.

Section 35AD: Specified Business Capital Expenditure Deduction

Specified business covered under section 35AD

This section shall apply in case of following specified businesses:

(i) Setting up and operating a cold chain facilities for specified products on or after 1-4-2009.

(ii) Setting up and operating a warehousing facilities for storage of agricultural produce on or after 1-4-2009.

(iii) Laying and operating a cross country natural gas or crude or petroleum oil pipeline network for distribution including storage facilities being an integral part of such network on or after 1-4-2007.

(iv) Building and operating a hotel of two star or above category anywhere in India on or after 1-4-2010.

(v) Building and operating a hospital with atleast 100 beds for patients anywhere in India on or after 1-4-2010.

(vi) Developing and building a housing project for slum redevelopment or rehabilitation scheme framed by Central or a State Government and notified by Board as per guidance as may be prescribed on or after 1-4-2010.

(vii) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government and notified by the Board in this behalf as per prescribed guidelines on or after 1-4-2011.

(viii) Production of fertilizer in India on or after 1-4-2011.

(ix) Setting up and operating an inland Container depot or a container freight station notified or approved under the Customs Act. 1962 on or after 1-4-2012.

(x) Bee-keeping and production of honey and bees wax on or after 1-4-2012.

(xi) Setting up and operating a warehousing facility for storage or sugar on or after 1-4-2012.

(xii) Laying and operating a slurry pipeline for the transportation of iron ore on or after 1-4-2014.

(xiii) Setting up and operating a semiconductor wafer fabrication manufacturing unit on or after 1-4-2014, if such unit is notified by the Board in accordance with the prescribed guidelines.

(xiv) Developing or operating and maintaining or developing, operating and maintaining, any infrastructure facility on or after 1-4-2017, i.e., assessment year 2018-19.

However, deduction under section 35AD is not available towards expenditure incurred for acquisition of any land or financial instrument or goodwill. Additionally, the deduction is also not available when payment/ aggregate of payment exceeds INR 10,000 to a person in a single day and such payment is done via cash or bearer cheque or crossed cheque. Also, deduction under section 35AD is made optional with effect from 1^st April 2020. No deduction shall be allowed under provisions of Section 10AA of the Income Tax Act (i.e. Special Economic Zones deduction). or under Chapter VI-A under part-C ‘Deductions in respect of certain incomes’.