If you're a business owner planning to make heavy capital investments in infrastructure or facilities, Section 35AD of the Income Tax Act might just be the golden ticket you’ve been overlooking. This section allows a 100% deduction for specific capital expenditures incurred by businesses engaged in certain specified activities. Let’s break this down simply & see how this section can be a game-changer in your tax strategy.
💡 What is Section 35AD of the Income Tax Act?
Section 35AD was introduced to encourage investments in India’s infrastructural & development sectors. It permits a deduction of 100% of capital expenditures made by taxpayers towards eligible businesses. The benefit is available in the year the capital expense is incurred, provided it meets the conditions laid out in the Act.
So instead of waiting & depreciating the asset year after year, you get an immediate 100% write-off in the same financial year. “
📌 Which Businesses Qualify Under Section 35AD?
Only specified businesses can avail of this benefit. Here’s a list of some of them:
- Setting up & operating cold chain facilities
- Warehousing for agricultural produce
- Laying & operating cross-country natural gas pipelines
- Setting up & running hotels of two-star or above category
- Operating hospitals with at least 100 beds
- Building & operating affordable housing projects
- Fertiliser production units
- Inland container depots or container freight stations
Pro Tip: Keep checking the Finance Act updates, as the list of eligible specified businesses may change.
🏗️ What Kind of Capital Expenditures Are Allowed?
Here’s the key: Section 35AD allows a 100% deduction for specific capital expenditures incurred by businesses, but with a catch.
The expenditure must be capital in nature, directly related to the business, & should not be incurred on land, goodwill, or financial instruments. So, if you’re buying machinery, constructing buildings, or installing infrastructure, you’re in the green zone.”
These expenses should be wholly & exclusively for the specified business.
Also, the deduction is available only if the payment of such expenditure exceeds ₹10,000 & is made via banking channels—so no cash payments here.
✅ Key Conditions for Claiming Deduction under Section 35AD
To avoid disallowance, make sure you:
- Do not claim depreciation under Section 32 on the same asset
- Start the operations of the specified business within the timeline prescribed
- Are not involved in transferring the asset for 8 years, failing which the deduction could be revoked
This ensures that the deduction is not misused for short-term gain & is aligned with long-term infrastructural development.
🧾 Dedication vs Depreciation – Why 35AD is Better
Normally, capital expenses would be spread over multiple years under depreciation. But Section 35AD allows a single-shot deduction of the entire amount in the year incurred. That’s a huge tax shield, especially in the initial setup phase.
For example, if you invest ₹2 crores in setting up a hospital, you can reduce your taxable income by the entire ₹2 crores in the same year, subject to compliance.
This benefit applies even before your business starts generating revenue, which makes it ideal for startups in the infrastructure space.
🛡️ Summary: Why Section 35AD is a Tax Saver’s Dream
- Provides 100% deduction on capital expenditure
- Encourages long-term infrastructural investment
- Reduces tax liability drastically in the early years
- Applies to a growing list of development-focused businesses
- Helps businesses become cash-efficient right from the start
Whether you’re setting up a new hospital or an agricultural warehouse, Section 35AD offers a strategic route to minimise your tax burden while contributing to nation-building. However, it’s crucial to plan these deductions correctly, as the compliance conditions are strict & missing out on even one can invite scrutiny.
💬 Thinking of claiming capital deductions but unsure about compliance? Let our experts at Callmyca.com help you structure your investment for maximum tax benefits without breaking a sweat. Book your consultation today & unlock smart savings now!
