Section 35AD of Income Tax Act
Section 35AD of Income Tax Act
Section 35AD of the Income Tax Act offers a significant tax benefit to businesses that invest in eligible assets. This section allows for a deduction from taxable income equal to 100% of the capital expenditure incurred on these assets.
The primary goal of this provision is to encourage businesses to invest in assets that can boost their productivity and growth. By reducing the tax burden on such investments, the government aims to stimulate economic development and create jobs.
However, it is important to note that the deduction is subject to certain conditions and limitations. The assets must be eligible for the deduction, and the investment must meet specific criteria.
Understanding these requirements is crucial for businesses to amp up the benefits offered by Section 35AD of Income Tax Act. Therefore, keep reading to understand Section 35AD in detail.
Section 35AD: An Overview
Section 35AD of the Income Tax Act provides businesses with the opportunity to claim deductions on specific capital expenditures. This benefit is available to businesses that fall under the category of "specified businesses" as outlined in the Act. The primary objective of this section is to encourage investment in sectors that are crucial to the country's infrastructure and economic growth.
Under Section 35AD, taxpayers can claim a 100% deduction on capital expenditures made exclusively for their business during the financial year. However, these expenditures should be directly linked to the business operations and must not include the cost of land, goodwill or financial instruments.
This provision of gaining business tax incentives allows businesses to significantly reduce their taxable income by deducting eligible expenses from their profits. By offering this deduction, the government aims to stimulate growth in key sectors, fostering greater economic development while allowing businesses to manage their financial resources more effectively.
Specified Business List Under Section 35AD
| Commencement Date | List of Specified Businesses |
|---|---|
| On or after 01/04/2007 | Laying and operating a cross-country natural gas, petroleum or crude pipeline network |
| On or after 01/04/2009 | Setting up and operating a cold chain facility for specified products |
| On or after 01/04/2009 | Setting up and operating a warehousing facility for storing agricultural produce |
| On or after 01/04/2010 | Building and operating a hotel with a rating of two stars or higher in India |
| On or after 01/04/2010 | Building and operating a hospital with at least 100 beds |
| On or after 01/04/2010 | Developing and building a housing project under slum redevelopment or rehabilitation |
| On or after 01/04/2011 | Developing and building an affordable housing project |
| On or after 01/04/2011 | Production of fertiliser |
| On or after 01/04/2012 | Setting up and operating an Inland Container Depot or Container Freight Station |
| On or after 01/04/2012 | Bee-keeping and production of honey or beeswax |
| On or after 01/04/2012 | Setting up and operating a warehousing facility for sugar storage |
| On or after 01/04/2014 | Laying and operating a slurry pipeline for iron ore transportation |
| On or after 01/04/2014 | Setting up and operating a semiconductor wafer fabrication unit |
| On or after 01/04/2017 | Developing, operating or maintaining a new infrastructure facility |
Conditions or Eligibility Criteria Under Section 35AD
To qualify for deductions under Section 35AD, a business must meet the following criteria:
No Reconstruction or Division: The specified business should not be created by reconstructing or dividing an existing business.
No Transfer of Used Assets: The business should not involve the transfer of previously used plants or equipment.
-For Pipeline Businesses (Crude Oil, Natural Gas or Petroleum)
The company must be incorporated and registered in India.
Approval from the Petroleum and Natural Gas Regulatory Board (PNGRB) is mandatory.
At least a part of the pipeline must be made available for common carrier use in accordance with PNGRB guidelines.
-For Infrastructure Development and Maintenance Businesses
The business must be registered in India.
A formal agreement with a statutory body, local authority or government (state or central) is necessary for developing, managing, operating and maintaining the infrastructure.
By meeting these criteria, businesses can take advantage of the tax benefits under Section 35AD.
Income Tax Benefits of Section 35AD
Section 35AD serves as a valuable tool for businesses to optimise their finances while contributing to the nation's infrastructure. Here are a few benefits that taxpayers can enjoy:
Businesses can claim a 100% capital expenditure deduction incurred exclusively for specified businesses in the previous financial year.
Section 35AD offers an investment-linked tax benefit for eligible businesses, allowing them to reduce taxable income and improve profitability.
Businesses involved in constructing and operating cross-country natural gas, crude or petroleum pipelines, including storage facilities, can avail of this benefit.
The deduction promotes the development of infrastructure in key sectors, providing businesses with financial relief and aiding economic growth.
Amount of Deductions Available Under Section 35AD
Businesses can claim a tax deduction for capital expenditures incurred after the commencement of their specified business in the same financial year in which the expenses are made.
For capital expenditures incurred before the business starts operations, the entire amount can be deducted in the first year of business, provided these expenses are recorded in the company’s books of accounts on the commencement date. This allows businesses to recover their initial investments right from the start of their operations, offering significant tax relief.
Treatment of Losses from Specified Business
Section 73A of the Income Tax Act outlines specific rules for setting off and carrying forward losses incurred by businesses referred to in Section 35AD.
-Setting Off Losses
Specified Business Losses: Losses arising from specified businesses can only be offset against profits from other specified businesses. This means that these losses cannot be used to reduce taxable income from non-specified business activities.
Non-Specified Business Losses: Losses from non-specified businesses offer more flexibility. They can be set off against profits from both specified and non-specified businesses. This provides some relief to businesses that have losses in one area but profits in another.
-Carrying Forward Losses
Specified Business Losses: A significant benefit for specified businesses is the ability to carry forward losses even if the business is discontinued. This means that if a specified business incurs a loss, that loss can be carried forward and used to offset future profits, regardless of whether the business continues to operate.
Carry Forward Period: There is no definite time limit for carrying forward specified business losses. However, to maintain this right, the assessee must consistently file their income tax returns on or before the due date each year. This ensures that the losses remain valid for future use.
Points to Keep in Mind for Claiming Deductions Under Section 35AD
When considering deductions under Section 35AD of the Income Tax Act, there are several important points to keep in mind:
-Optional Deduction
As of April 1st, 2023, the deduction under Section 35AD is not mandatory. Businesses can choose whether or not to claim this deduction based on their financial strategy and tax planning needs.
-Limitations on Other Deductions
Suppose a company opts to take a deduction under Section 35AD. In that case, it must be aware that it cannot claim deductions under Section 10AA (which provides tax benefits for Special Economic Zone (SEZ) units) or under Chapter VIA, Part C (which covers profit-based deductions) for that financial year and any subsequent years.
This means that claiming benefits under Section 35AD will limit the options for other deductions, so companies should consider this when making their decision.
-Exclusivity of Deductions
By claiming a deduction under Section 35AD, a business cannot claim deductions under other provisions of the Income Tax Act. This exclusivity underscores the importance of planning and understanding the full tax implications before proceeding with the deduction.
-Asset Usage Requirement
If a specified business deducts an asset under Section 35AD, it must use that asset exclusively for the business for a minimum of eight years. The eight-year period starts from the year in which the asset was purchased. If the asset is not used solely for business purposes during this time, the deduction may be disallowed.
By keeping these points in mind, businesses can better navigate the tax benefits available under Section 35AD while making informed decisions about their financial and tax planning strategies.
It is essential for companies to analyse their eligibility and the potential impact on their overall tax situation to ensure they are maximising their benefits while complying with tax regulations.
Importance of Investing in Health Insurance for Income Tax Savings
When you buy health insurance with TATA AIG, you not only safeguard your health but also enjoy significant tax benefits. Under Section 80D of the Income Tax Act, individuals can claim deductions for premiums paid towards health insurance. This deduction helps reduce taxable income, ultimately leading to lower tax liability.
Medical insurance is crucial in today’s world due to rising healthcare costs. With TATA AIG’s comprehensive plans, you get coverage not only for hospitalisation but also for day-care procedures, pre-and post-hospitalisation expenses and even critical illnesses. This ensures that you receive quality medical care without straining your finances.
Also, investing in a health insurance plan promotes a culture of health awareness and financial planning. It encourages individuals to prioritise their health while enjoying the tax benefits.
By choosing TATA AIG family medical insurance, you can rest assured knowing a trusted provider with a wide network of hospitals and seamless claim processes backs you and your loved ones.
Basically, when you invest in health insurance, you make a smart financial decision that not only secures your health but also offers attractive tax savings, making it an essential part of your financial planning strategy.
Key Takeaways
Section 35AD of the Income Tax Act serves as a valuable tool for businesses looking to invest in specified industries. By providing 100% tax deductions on capital expenditures, it encourages investment in crucial sectors.
Understanding the eligibility criteria, loss treatment and the limitations on deductions is essential for maximising benefits. Businesses can enhance their financial planning and contribute to economic growth by making informed decisions regarding these deductions.
Ultimately, leveraging Section 35AD can lead to significant tax savings and foster a supportive environment for specified businesses to thrive.
Disclaimer / TnC
Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.
Frequently Asked Question
Other Topics
