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Rule 272Published

Rule 272: Deduction for the cost of producing a feature film

Rule 272 sets out how a person carrying on the business of production of feature films (the film producer) deducts the cost of production of a feature film certified for release by the Board of Film Censors. The timing depends on what the producer does with the film in the tax year of certification: selling all exhibition rights, or exhibiting the film or selling rights and releasing it at least ninety days before the year ends, gives a full deduction in that year; a later release limits the deduction to the amounts realised, with the balance carried forward; and if the film is not exploited in that year, the whole cost moves to the next tax year. The deduction also depends on the receipts being credited in the books of account.

Official notified Income-tax Rules, 2026

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Bare law

Rule 272 - Deduction in respect of expenditure on production of feature films

(1) In computing the profits and gains of the business of production of feature films carried on by a person (herein referred to as the film producer), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a tax year shall be allowed in accordance with the provisions of sub-rules (2) to (4).

(2) Where a feature film is certified for release by the Board of Film Censors in any tax year and in such tax year,—

(a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such tax year; or

(b) the film producer—

(i) himself exhibits the film on a commercial basis in all or some of the areas; or

(ii) sells the rights of exhibition of the film in respect of some of the areas; or

(iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least ninety days before the end of such tax year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such tax year.

(3) Where a feature film is certified for release by the Board of Film Censors in any tax year and in such tax year, the film producer—

(a) himself exhibits the film on a commercial basis in all or some of the areas; or

(b) sells the rights of exhibition of the film in respect of some of the areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least ninety days before the end of such tax year, the cost of production of the film in so far as it does not exceed—

(i) the amount realised by the film producer by exhibiting the film on a commercial basis; or

(ii) the amount for which the rights of exhibition are sold; or

(iii) the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such tax year and the balance, if any, shall be carried forward to the next following tax year and allowed as a deduction in that year.

(4) Where, during the tax year in which a feature film is certified for release by the Board of Film Censors, and the film producer––

(a) does not himself exhibit the film on a commercial basis; or

(b) does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profit and gains of such tax year and entire cost of production shall be carried forward to the next following tax year and allowed as a deduction in that year.

(5) Irrespective of anything contained sub-rules (1) to (4), the deduction under this rule shall not be allowed unless,—

(a) in a case, where the film producer—

(i) has himself exhibited the feature film on a commercial basis; or

(ii) has sold the rights of exhibition of the feature film; or

(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas, the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible; or

(b) in a case, where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount, or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.

(6) Where the Assessing Officer is of the opinion that—

(a) the rights of exhibition of the feature film have been transferred by a mode not covered by this rule; or

(b) having regard to the facts and circumstances of the case, it is not practicable to apply the provisions of this rule, he may allow deduction in respect of cost of production of the film in such other manner as he may consider suitable.

(7) For the purposes of this rule,—

(a) sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis; and

(b) the rights of exhibition of a feature film shall be considered to have been sold only on the date,—

(i) when the positive prints of the film are delivered by the film producer to the purchaser of such rights; or

(ii) when the negative of the film is delivered by the film producer to the film distributors defined in rule 273, where in terms of the agreement between the film producer and the film distributor, the positive prints are to be made by the film distributor.

(8) In this rule,—

(a) "Board of Film Censors" means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952); and

(b) "cost of production", in relation to a feature film, means the expenditure incurred on the production of the film, not being—

(i) the expenditure incurred for the preparation of the positive prints of the film; and

(ii) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors, and the cost of production of a feature film shall be reduced by the amount of subsidy received under any Government scheme, where such amount has not been included in the total income of the assessee for any tax year.

Rule breakdown

Scope: Rule 272(1)

The rule applies when computing the profits and gains of the business of production of feature films carried on by the film producer.

It governs the deduction for the cost of production of a feature film certified for release by the Board of Film Censors in a tax year, in accordance with sub-rules (2) to (4).

Full deduction in the year of certification: Rule 272(2)

If, in the tax year of certification, the producer sells all rights of exhibition of the film, the entire cost of production is allowed in that tax year.

If, in that tax year, the producer exhibits the film himself on a commercial basis in all or some areas, sells the exhibition rights for some areas, or does both, and the film is released for exhibition on a commercial basis at least ninety days before the end of the tax year, the entire cost of production is allowed in that tax year.

Late release: deduction limited to realisations: Rule 272(3)

Where the producer exhibits the film or sells exhibition rights in the year of certification but the film is not released at least ninety days before the end of that tax year, the deduction for that year is capped.

The cap is the amount realised by exhibiting the film, the amount for which exhibition rights are sold, or the aggregate of both, as the case may be.

Any balance of the cost of production is carried forward to the next following tax year and allowed as a deduction in that year.

No exploitation in the year of certification: Rule 272(4)

Where, in the tax year of certification, the producer does not himself exhibit the film on a commercial basis, or does not sell the exhibition rights (as the clauses are worded), no deduction is allowed in that tax year.

The entire cost of production is carried forward to the next following tax year and allowed as a deduction in that year.

Receipts must be credited in the books: Rule 272(5)

Whatever sub-rules (1) to (4) say, the deduction is not allowed unless the relevant receipts are credited in the books of account maintained by the producer for the year in which the deduction is admissible.

Where the producer exhibited the film or sold rights, the amounts realised or the sale amounts (or their aggregate) must be credited.

Where rights were transferred on a minimum guarantee basis, the minimum amount guaranteed and any amount received or due in excess of it must be credited; a producer following the cash system credits the amount received towards the minimum guarantee and any excess received.

Assessing Officer's discretion: Rule 272(6)

If the Assessing Officer is of the opinion that the exhibition rights were transferred by a mode not covered by the rule, or that it is not practicable to apply the rule on the facts, he may allow the deduction for cost of production in such other manner as he considers suitable.

When rights are treated as sold: Rule 272(7)

A sale of exhibition rights includes a lease of those rights or their transfer on a minimum guarantee basis.

Rights are treated as sold only on the date the producer delivers positive prints to the purchaser, or, where the agreement requires the film distributor (as defined in Rule 273) to make the positive prints, on the date the producer delivers the negative to the distributor.

Definitions: Rule 272(8)

Board of Film Censors means the Board constituted under the Cinematograph Act, 1952.

Cost of production is the expenditure on producing the film, excluding expenditure on preparing positive prints and expenditure on advertising the film after certification.

Cost of production is reduced by any subsidy received under a Government scheme that has not been included in the assessee's total income for any tax year.

Points reproduced as printed in the gazette

Sub-rule (4): the lead-in ends "the film producer––" (two dashes in the extracted official text) and the clause reads "profit and gains"; both are reproduced as printed.

Sub-rule (5): the gazette reads "Irrespective of anything contained sub-rules (1) to (4)" without the word "in"; reproduced as printed.

Sub-rule (5)(a) ends with "; or" before clause (b), whereas the corresponding clause in Rule 273(5)(a) ends with "; and". The text is reproduced as printed.

Key takeaways

Ninety-day test

Release at least ninety days before the year ends decides whether the full cost is deductible in the year of certification.

Sale of all rights

Selling all exhibition rights in the year of certification gives a full deduction that year.

Carry forward

A late release caps the deduction at realisations; the balance moves to the next tax year.

Books of account

Realisations or minimum guarantee amounts must be credited in the books for the deduction to be allowed.

Practical checklist

  • Record the certification date, the commercial release date and the end of the tax year to apply the ninety-day test.
  • Credit exhibition realisations, sale proceeds or minimum guarantee amounts in the books for the year in which the deduction is claimed.
  • Keep positive-print and post-certification advertising costs separate from cost of production.
  • Reduce cost of production by any Government scheme subsidy not included in total income.

Avoid

  • Do not claim the full cost in the year of certification if the film was released less than ninety days before the year end and not all rights were sold.
  • Do not treat rights as sold before positive prints (or, where applicable, the negative) are delivered.

FAQs

What happens if the film is released less than ninety days before the end of the tax year?

The deduction for that year is limited to the amounts realised from exhibition and/or sale of exhibition rights; the balance is carried forward to the next following tax year and allowed in that year (Rule 272(3)).

Is the cost of positive prints part of the cost of production?

No. Expenditure on preparing positive prints is excluded from cost of production, as is expenditure on advertising the film after it is certified for release (Rule 272(8)(b)).

Does a Government subsidy reduce the cost of production?

Yes. Cost of production is reduced by any subsidy received under a Government scheme where that amount has not been included in the total income of the assessee for any tax year (Rule 272(8)(b)).

When are exhibition rights treated as sold?

Only on the date positive prints are delivered to the purchaser or, where the distributor is to make the positive prints under the agreement, on the date the negative is delivered to the distributor (Rule 272(7)(b)).

Can the Assessing Officer use a different method?

Yes. If the rights were transferred by a mode not covered by the rule, or the rule cannot practicably be applied, the Assessing Officer may allow the deduction in such other manner as he considers suitable (Rule 272(6)).

Glossary

Film producer
The person carrying on the business of production of feature films to whom the rule applies (Rule 272(1)).
Board of Film Censors
The Board of Film Censors constituted under the Cinematograph Act, 1952 (Rule 272(8)(a)).
Cost of production
Expenditure on producing the film, excluding positive-print expenditure and post-certification advertising, reduced by any untaxed Government scheme subsidy (Rule 272(8)(b)).
Minimum guarantee basis
A transfer of exhibition rights for a guaranteed minimum amount; a transfer on this basis counts as a sale of rights (Rule 272(7)(a)).

Official sources

Related rules