Section 35AD in the Income Tax Act

Section 35AD refers to deductions available towards any capital expenditure, wholly and
exclusively, incurred for carrying on a specified business.

Deduction under Section – 35AD shall be allowed under certain conditions as follows:

1. setup and operations of a cold chain facility.

2. setup and operations of a warehousing facility for storage of agricultural produce.
3. laying and operating a cross-country natural gas or crude or petroleum oil pipeline
network for distribution, including storage facilities being an integral part.
4. business of building and operating a hotel of two-star or above category anywhere in
India.
5. building and operating a hospital anywhere in India.
6. developing and building a housing project under a scheme for slum redevelopment or
rehabilitation.
7. developing and building a housing project under a scheme for affordable housing.
8. production of fertilizer in India.
9. bee-keeping and production of honey and beeswax.
10. setup and operations of a warehousing facility for sugar storage.
11. developing or maintaining and operating a new infrastructure facility.

Other Conditions to claiming deductions under Section-35AD are as follows:

1. It should be a new business. The specified business should not be any existing
business or split up or reconstruction of the same.
2. Any machinery or plant which was used outside India by any person (other than the
assessee) shall not be regarded as machinery or plant previously used for any purpose.
3. If the value of the transferred assets does not exceed 20 per cent of the total value of
the machinery or plant used in the business, then it is permitted.

Aspects of Deduction under Section-35AD:

1. Expenditure incurred on the acquisition of any land or goodwill or financial

instrument is not eligible for any deduction under section 35AD.
2. Deduction is not available (with effect from the assessment year 2018-19) pertaining
to any expenditure in respect of which payment / aggregate of payments made to a
person in a day by an account payee cheque/draft/ electronic clearing system through
a bank account exceeds Rs. 10,000.
3. Expenditure incurred prior to the commencement of operation, wholly and
exclusively, for the purpose of any specified business, shall be allowed as deduction
during the previous year in which the assessee commences the operation of his
specified business, if the amount is capitalized in the books of account of the assessee
on the date of commencement of operation.

 
 
 
Particulars Deduction available Conditions, if any
under section 35AD

Capital expenditure 100% of the expenditure is The deduction is available only if

incurred prior to allowed as a deduction in the expenditure amount is
commencement of the the first year of capitalized in the books of
specified business commencement. accounts on the date of
commencement of the business.

Capital expenditure 100% of the expenditure is _

incurred after the allowed as a deduction in
commencement of the the year the expenditure is
specified business incurred.

Consequences of Claiming Deductions under Section-35AD:

1. No deduction with respect to the expenditure shall be allowed to the assessee under
any other provisions of the Income-tax Act once deductions under section 35AD are
claimed.
2. Any sum received or receivable on account of any capital asset, in respect of which
deduction has been allowed under section 35AD, being demolished, destroyed,
discarded or transferred shall be treated as income of the assessee and chargeable to
income-tax under the head “Profits and gains of business or profession”.
3. If the assessee owns two units of which one qualifies for deduction under section 35AD and
the other one is not eligible for the same and there is inter-unit transfer of goods or
services between the two units, then for the purpose of section 35AD calculation will
be made as if such transactions are made at the market value.
4. An asset shall be used only for the specified business for a period of 8 years beginning
with the previous year in which such asset is acquired or constructed. If such asset is
used for any purpose other than the specified business, the total amount of deduction
so claimed and allowed in any previous year in respect of such asset shall be deemed
to be business income of the assessee of the previous year in which the asset is so
used.