Sec 35AD

Deduction available towards expenditure on specified business under section 35AD of the Income Tax Act is briefly explained in the current article.

Provision :

As per provisions of section 35AD, the deduction is available towards any capital expenditure, wholly and exclusively, incurred for carrying on a specified business.

Notably, 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.

Conditions for claiming deduction under section 35AD

Deduction under section 35AD of the Income Tax Act is available only if the following conditions are satisfied-

1. The specified business should not have been set up by splitting up/ reconstruction of the already existing business.

2. The specified business should not have been set up by the transfer of plant/ machinery which was previously used for other purposes.

3. Additional condition, when specified business is of laying and operating a cross country natural gas/ crude/ petroleum oil pipeline network for distribution or storage-

a. The company should be formed and registered in India,

b. It should be approved by the Petroleum and Natural Gas Regulatory Board,

c. It should have made not less than such proportion of its total pipeline as per regulations made by the Petroleum and Natural Gas Regulatory Board available for use on common carrier basis by any other person., and

d. It should fulfil any other prescribed conditions.

4. Additional condition, when specified business is developing/ maintaining and operating/ developing, managing and operating the new infrastructure facility-

a. The company should be formed and registered in India, and

b. It should have entered into an agreement with the Central Government/ State Government/ local authority/ any other statutory body for developing/ maintaining and operating/ developing, managing and operating the new infrastructure facility.

Other important points worth nothing related to Section 35AD

1. With effect from 1^st April 2020, deduction under section 35AD is made optional.

2. No deduction shall be allowed under provisions of Section 10AA of the Income Tax Act (i.e. Special Economic Zones deduction).

3. No deduction will be allowed under Chapter VI-A under part-C ‘Deductions in respect of certain incomes’.

4. Deduction already claimed and allowed under section 35AD will not be allowed under any other section.

5. The asset against which deduction is claimed under section 35AD should be used exclusively for the specified business for a period of eight years starting from the previous year in which the asset is acquired