[Section-35AD] : Deduction in respect of expenditure incurred on setting up of a Specified Business


With effect from assessment year 2010-11, a new deduction u/s 35AD was. introduced to provide incentive to those assessees who sets up new business units in certain specified Areas/ Fields. This deduction shall be available if following conditions are satisfied :

(1) A unit is set up in specified businesses.

(2) Unit of the specified business should be a new one.

(3) Books of the assessee are audited.

This new section shall apply in case of following businesses :

(i) Setting up and operating a cold chain facilities for specified products.

(ii) Setting up and operating a warehousing facilities for storage of agricultural produce.

(iii) Laying and operating a cross country natural gas or crude or petroleum oil pipeline network for distribution including storage facilities being an integral part of such network.

(iv) Building and operating a hotel of two star or above category anywhere in India.

(v) Building and operating a hospital with atleast 100 beds for patients anywhere in India.

(vi) Developing and building a housing project for slum redevelopment or rehabilitation scheme framed by Central or a State Government and notified by Board as per guidance as may be prescribed.

(vii) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government and potified by the Board in this behalf as per prescribed guidelines [w.e.f. Assessment year 2012-131.

(viii) Production of fertilizer in India [w.e.f. Assessment year 2012-13).

(ix) Setting up and operating an inland Container depot or a container freight station notified or approved under the Customs Act. 1962 on or after 1-4-2012;

(x) Bee-keeping and production of honey and bees wax on or after 1-4-20 12

(xi) Setting up and operating a warehousing facility for storage or sugar on or after 1-4-20 12

Rate of Deduction

In case an assessee sets up a new business unit in the given list of the specified businesses, a deduction @ 100% of capital expenditure incurred shall be allowed. This deduction shall be allowed in the year in which this expenditure is incurred.

Increased deduction @ 150% for following specified businesses commencing operations on or after 1-4-2012 [w.e.f. 1-4-2013]

(i) Setting up and operating a cold chain facility; [Section 35AD(8)(C)(i)j.

(ii) Setting up and operating a warehousing facility for storage of agriculture produce; [Sec. 35AD(8)(C)(ii)].

(iii) Building and operating, anywhere in India a hospital with atleast 100 beds for patients [Sec. 35AD (8)(C)(v)].

(iv) Developing and building a housing project [Sec. 35AD(8)(C)(vii)]

(v) Production of fertilizers in India [Sec. 35AD(8)(C)(viii)].

Following points to be noted in this connection :.

(i) This deduction will not be available in case of an expenditure incurred on the purchase of land, goodwill or financial instruments.

(ii) Any capital expenditure incurred by the assessee prior to the commencement of operations of the new unit shall also be allowed as deduction in the previous year in which assessee commences the operations of his new specified business. Assessee must capitalise the amount of expenditure in his books of accounts on the date of commencement of operation of the specified business.

(iii) In case assessee has enjoyed the benefit of deduction u/s 35AD, he cannot claim any deduction for the same expenditure u/s 80 or any other provisions of Income-Tax Act.

(iv) In case those assets regarding which assessee had claimed deduction u/s 35AD are destroyed, demolished, discarded or transferred and any money received in this connection by the assessee will have to be credited to Profit and Loss Account of the assessee.

(v) In case of a loss in specified business, the same shall be set-off against the profit of another specified business only. In case it is not possible in that year, then unabsorbed part of the loss shall be carried forward to be set-off against the profit of the specified business in future years. Carry forward is allowed over indefinite number of years.


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