Section 46: capital expenditure of specified business

The upfront 100% deduction

Section 46(1) allows the assessee, at its option, to deduct the whole of capital expenditure incurred wholly and exclusively for a specified business, in the tax year it is incurred.

Section 46(2) allows pre-commencement expenditure, if capitalised in the books as on the date operations commence, to be deducted in the year the business commences.

Conditions for eligibility

Section 46(3) requires that the specified business is not set up by splitting up or reconstructing an existing business, and is not set up using machinery/plant previously used for another purpose. Additional conditions apply to natural gas pipeline networks (ownership, regulatory approval, minimum common-carrier capacity) and to certain infrastructure-facility businesses (ownership and government agreement requirements).

Which businesses qualify

Section 46(11)(d) defines "specified business" to include:

• Setting up and operating a cold chain facility.
• Setting up and operating a warehousing facility for storage of agricultural produce, or of sugar.
• Laying and operating a cross-country natural gas, crude or petroleum oil pipeline network (including storage facilities).
• Building and operating a hotel (two-star or above) anywhere in India.
• Building and operating a hospital with at least 100 beds.
• Developing/building housing under a notified slum-redevelopment or affordable-housing scheme.
• Production of fertilizer in India.
• Setting up and operating an inland container depot or container freight station.
• Bee-keeping and production of honey and beeswax.
• Laying and operating a slurry pipeline for transportation of iron ore.
• Setting up and operating a notified semi-conductor wafer fabrication manufacturing unit.
• Developing, or operating and maintaining, a new infrastructure facility.

Commencement-date table

Section 46(6) contains a Table linking each type of specified business to the date its operations must have commenced on or after, for this deduction to apply - the dates in the Table range from 1 April 2007 (natural gas pipeline networks) up to 1 April 2017 (infrastructure facilities), with 1 April 2009 as the general/residual date for other cases.

No double deduction, and the 8-year lock-in

Section 46(4) and (5) bar claiming a deduction under Chapter VIII-C, or under this section in another year, for the same expenditure once it has been claimed and allowed here.

Section 46(9) requires any asset for which this deduction was claimed to be used only for the specified business for eight years from the year of acquisition/construction. If it is used for another purpose within that period (and the diversion is not otherwise taxed under Section 26(2)(k)), the total deduction previously claimed - reduced by the depreciation that would otherwise have been allowable under Section 33 - becomes taxable business income in the year of the diversion. This clawback does not apply to a company that became a "sick industrial company" during that period (Section 46(10)).

Exclusions from "capital expenditure" for this section

Under Section 46(11)(g), capital expenditure for this section excludes any payment (or aggregate of payments in a day) exceeding ₹10,000 to a person not made through specified banking or online mode, and excludes any expenditure on acquiring land, goodwill or a financial instrument.

Frequently asked questions