Section 35AD INVESTMENT LINKED TAX INCENTIVE FOR SPECIFIED BUSINESS
Section 35AD INVESTMENT LINKED TAX INCENTIVE FOR SPECIFIED BUSINESS
Section 35Ab provides investment linked incentives to the following businesses:
• Setting-up and operating a cold chain facility
• Setting-up and operating a warehousing facility for storage of agricultural produce
• Building and operating a hospital with minimum 100 beds for patients (the hospital can be located anywhere in India)
• Developing and building a housing project under a scheme for affordable housing
• Production of fertilizers in India
• Laying and operating a cross-country natural gas or crude oil or petroleum oil pipeline for distribution, including storage facilities being an integral part of such network.
• Building and operating, anywhere in India, a hotel of two star or above category (Where an assessee has built a hotel and has subsequently outsourced the hotel operations to any other person, the assessee would still be eligible for deduction u/s 35A0)
• Developing and building a housing project under a scheme for slum redevelopment or rehabilitation
• Setting-up and operating an inland container depot or a container freight station
• Bee-keeping and production of honey/beeswax
• Setting-up and operating a warehousing facility for storage of sugar
• Laying and operating a slurry pipeline for transportation of iron ore
• Setting-up and operating a semi-conductor wafer fabrication manufacturing unit
• Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility
Quantum of Benefits u/s 35AD
Case (a) - Expenditure incurred AFTER the commencement of business:
• Capital Expenditure:
❑ On land, goodwill or financial instruments: Nil
❑ Other capital expenditure: 100 % of the capital expenditure shall be allowed deduction in the year in which such capital expenditure has been incurred.
• Revenue Expenditure:
100% of the revenue expenditure shall be allowed as deduction in the year in which such revenue expenditure has been incurred.
Case (b) - Expenditure incurred BEFORE the commencement of business:
Expenditure incurred before the commencement of business shall be allowed as deduction in the year in which the business commences to the extent of 100% of such expenditure provided such expenditure has been capitalized in the books of accounts on the date of commencement of business. However, expenditure on acquisition of land, goodwill or financial instruments shall not be allowed.
Latest Amendment Introduced Vide The Finance Act 2017.
If payment or aggregate of payments made to a single person in a single day in respect of a particular expenditure exceeds Rs 10,000, deduction shall be allowed for such expenditure only if payment has been made by way of account payee cheque, account payee draft or by use of electronic clearing system through a bank account. If payment has been made by any other mode, deduction shall not be allowed in respect of such expenditure.
Other Points To Be Noted
• Meaning 'Infrastructure Facility':
➢ A road including toll road, a bridge or a rail system;
➢ A highway project including housing or other activities being an integral part of the highway project;
➢ A water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; and
➢ A port, airport, inland waterway, inland port or navigational channel in the sea.
• No other deduction possible:
If deduction has been allowed u/s 35AD, the assessee shall not be allowed any deduction in respect of the specified business u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-1E, 80JJA, 80JJAA, 80QQ8 and 80RRB.
• Sale of asset for which deduction has been claimed u/s 35AD to be treated as business income:
If any asset, in respect of which deduction has been allowed u/s 35AD, is sold, destroyed, demolished etc, the amount received on its sale, disposal, etc shall be treated as income of the assessee u/h 'income from business/profession'.
• Assets cannot be used for other purposes for 8 years:
❑ The assets, the cost of which has been claimed as deduction u/s 35AD, must be used for the specified business for a period of at least 8 years.
❑ If such asset is used for any purpose other than the specified business within the period of 8 years, the following amount shall be deemed to be the income of the assessee u/h 'income from business/profession' for the previous year in which the asset has been so used.
Total deduction allowed u/s 35AD
Less: Amount of depreciation allowable u/s 32
Amount deemed as income u/h PGBP
Example: Deduction claimed u/s 35Ab on a capital asset is Ps 100 lakhs whereas depreciation eligible on such asset u/s 32 is Rs 15 lakhs. In this case, an amount of Ps 85 lakhs would be deemed as the income of the assessee u/h 'income from business/profession'.
• Set-off & carry-forward of losses of a specified business covered u/s 35AL (Section 73A):
❑ Intra-Head Adjustment: Losses of a business specified u/s 35AD are allowed to be set-off only against the income of another business specified u/s 35AD.
❑ Inter-Head Adjustment: Losses of a business specified u/s 35AD cannot be set-off against income under any other head.
❑ Carry Forward of Losses: Unadjusted losses of a business specified u/s 35Ab are allowed to be carried forward indefinitely for being set-off against the income of a business specified u/s 35AD in future years.
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