Deduction in Respect of Expenditure on Specified Business [Sec. 46]
by Section 46 of the Income-tax Act, 2025 allows a full deduction of capital expenditure incurred wholly and exclusively for a specified business, in the tax year such expenditure is incurred. This provision corresponding to erstwhile Section 35AD — is designed to incentivise investment in select sectors such as infrastructure, hospitality, and healthcare by permitting 100% write-off, rather than gradual depreciation. The deduction is available at the assessee’s option, subject to specified conditions ensuring the business is genuinely new and not a reorganisation of an existing enterprise.
1. Nature and Scope of Deduction [Sec. 46(1)-(2)]
Under Section 46(1), an assessee may, at his option, claim deduction of the entire capital expenditure incurred wholly and exclusively for a specified business carried on during the relevant tax year. Notably, this allows immediate write-off instead of spreading the cost through depreciation over several years, offering significant cash-flow benefit for capital-intensive new ventures. Section 46(2) extends this benefit to pre-commencement expenditure- capital expenditure incurred before operations begin is allowed as a deduction in the tax year the business actually commences, provided such expenditure has been duly capitalised in the books of account as on that date.
2. Conditions for Eligibility [Sec. 46(3)]
Section 46(3) prescribes that the deduction applies only where the specified business satisfies all conditions cumulatively. The business must not be set up by splitting up or reconstruction of an already existing business, ensuring the incentive targets genuinely new investment rather than restructured old operations. Further, it must not be set up by transfer of machinery or plant previously used for any other purpose safeguarding against businesses claiming fresh deduction on already-used assets repurposed merely to access this benefit. These anti-abuse conditions preserve the provision’s intent of promoting bona fide new capacity creation.
3. Specified Businesses Covered
The benefit under Section 46 applies to a notified list of businesses, including laying and operating cross-country natural gas pipelines, building and operating two-star or above hotels, setting up hospitals with 100+ beds, and developing slum redevelopment housing projects, each subject to a specified commencement date for eligibility. Other sectors historically covered under this scheme (as per the earlier Section 35AD framework) include cold chain facilities, warehousing for agricultural produce, and affordable housing projects, reflecting the government’s continued policy thrust toward infrastructure and social-sector investment through tax-based incentives.