Section 46 Capital expenditure of specified business.

Income-tax Act, 2025

At a Glance

Clause 46 (old version) of the Income Tax Bill, 2025 is the proposed provision for immediate deduction of capital expenditure incurred for specified businesses. It sets out eligibility conditions, anti-avoidance safeguards, a list of qualifying businesses with effective commencement dates, and restrictions on subsequent use and alternative deductions. This provision primarily affects taxpayers carrying on the listed specified businesses, and interacts with other deduction provisions and procedural sections (as cross-referenced). Effective dates for different businesses are specified in the Table.

Background & Scope

This clause is framed under the head "Profits and gains of business or profession" and proposes a statutory allowance for the entire capital expenditure incurred "wholly and exclusively" for specified businesses in the tax year in which such expenditure is incurred (sub-sections (1) and (2)). The clause covers pre-commencement capitalisation (allowed in the year of commencement) and enumerates conditions to curb misuse (sub-section (3)). Definitions relevant to the clause are provided in sub-section (11), including "associated person", "cold chain facility", "infrastructure facility" (by reference to the Explanation to section 80-IA(4)), and a detailed list of "specified business" activities. The clause also prescribes restrictions on claiming other deductions and sets usage and recapture provisions (sub-sections (4)-(10)).

Statutory Provision Mode

Text & Scope

Coverage: The clause permits an assessee, at his option, to claim a deduction of the whole capital expenditure incurred wholly and exclusively for purposes of any specified business during the tax year in which the expenditure is incurred (sub-section (1)). If such expenditure is incurred before commencement and capitalised in books as on commencement date, the deduction is allowed in the tax year business commences (sub-section (2)).

Scope: Applies only to businesses listed as "specified business" in sub-section (11)(d) and subject to conditions in sub-section (3). A table (sub-section (6)) prescribes specific commencement dates for applicability across different business types.

Interpretation

The text contemplates a liberal timing rule for capital expenditure - immediate full deduction - but tempers it with conditions to prevent splitting/reconstruction and transfers of previously used machinery. Where specified, ownership and approvals (e.g., regulatory board notifications/approvals) are prerequisites. The provision authorises recapture where assets cease to be used for the specified business within eight years. The reference to "at his option" indicates a taxpayer elective regime (taxpayer may choose to claim the deduction in the relevant year).

Exceptions/Provisos

Key carve-outs and conditions:

• Not applicable if business is set up by splitting up or reconstruction of an existing business (sub-section (3)(a)).
• Not applicable to businesses set up by transfer of machinery or plant previously used for any purpose (sub-section (3)(b)), with a limited de minimis exception if transferred machinery value does not exceed 20% of total (sub-section (11)(f)).
• For certain pipeline businesses and infrastructure projects, additional ownership, approval and common-carrier capacity conditions apply (sub-section (3)(c) and (d)).
• Where deduction under sub-section (1) is claimed and allowed, no deduction shall be allowed u/s 144 and Chapter VIII-C for the same or any other tax year (sub-section (4)).
• Assets on which deduction is claimed must be used solely for the specified business for eight years; if used otherwise (and not chargeable u/s 26(2)(k)), recapture makes the earlier deductions taxable after reducing allowed depreciation (sub-section (9)).
• Expenditure by cash above ten thousand rupees in a day (unless through specified banking or online mode) and acquisition of land, goodwill or financial instruments are excluded from "expenditure of capital nature" for this purpose (sub-section (11)(g)).

Illustrations

• Example 1: A company sets up a new hotel (two-star or above) commencing operations on 1st April, 2011 and incurs capital expenditure wholly and exclusively for the hotel in that tax year. If conditions in sub-section (3) are met, the company may, at its option, claim full deduction of that capital expenditure in the tax year of incurrence (or where pre-commencement and capitalised, in year of commencement). (Consistent with sub-sections (1), (2), and Table entry 2.)

• Example 2: An assessee imports a plant that was never used in India and claims capital expenditure deduction for setting up a wafer fabrication unit notified by the Board. Provided no depreciation had been allowed previously for that plant and other conditions are satisfied, the machinery will not be treated as "previously used" for the purpose of sub-section (3)(b) (sub-section (11)(e)).

• Example 3: A taxpayer claims deduction under sub-section (1) for a sugar warehousing facility, then uses the asset for a different non-specified purpose in year 5. If the alternative use is not chargeable u/s 26(2)(k), recapture rules in sub-section (9)(b) make earlier deductions taxable after adjusting depreciation as if no deduction under this section was allowed.

Interplay

The clause expressly displaces certain other deductions for the same expenditure (section 144 and Chapter VIII-C). It ties the definition of "infrastructure facility" to section 80-IA(4) Explanation, thereby importing interpretative linkages with that provision. Procedural or evidentiary measures "so far as may be" apply from other sections (122(6); 138(18) and (23) as per the Bill), creating procedural interplay. The recapture mechanism refers to section 33 (depreciation computation) and section 26(2)(k) (chargeability of income), indicating cross-references to general tax provisions for computation and chargeability.

Differences Between Section 46 of the Income-tax Act, 2025 and Clause 46 of the Income Tax Bill, 2025 - (old version)

• Clause (4) - Cross-reference to other deductions: Document 1 (Act) excludes only Chapter VIII-C if deduction under sub-section (1) is claimed and allowed; Document 2 (Bill, old) excludes both section 144 and Chapter VIII-C.
  • Practical impact: The Bill would have blocked a further specific deduction u/s 144 (if applicable) in addition to Chapter VIII-C; the enacted Act narrows the prohibition, potentially allowing relief u/s 144 where otherwise barred under the Bill.
• Section cross-references in sub-section (8): Document 1 (Act) refers to the provisions contained in sections 122(6) and 140(8) and (13); Document 2 (Bill, old) refers to sections 122(6) and 138(18) and (23).
  • Practical impact: Different procedural or evidentiary provisions would apply depending on which sections are referenced; the change in numbering alters the procedural regime said to apply "so far as may be" to this section. The practical effect depends on substantive content of the referenced sections (not reproduced here).
• Definition of "infrastructure facility": Document 1 supplies an explicit list (roads, highways, water projects, ports, airports, etc.). Document 2 adopts the meaning assigned in the Explanation to section 80-IA(4) of the Income-tax Act, 1961.
  • Practical impact: The Bill ties the definition to an external, possibly broader or differently worded, statutory explanation; this may create reliance on section 80-IA(4) jurisprudence and any changes thereto, producing potential interpretive divergence from a self-contained list.
• Table entries - notification/guidelines wording: Several entries differ in phrasing. Document 1 uses "notified by the Board in this behalf in accordance with the guidelines as may be prescribed" or "which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed"; Document 2 uses variants such as "as notified by the Board, as per the guidelines as notified by the Board" or "as per the guidelines notified by the Board."
  • Practical impact: Minor drafting differences likely intended to clarify who notifies and whose guidelines apply; in practice they may change administrative steps for notification or guidance but are largely textual refinements.
• Semiconductor entry wording: Document 1: "which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed." Document 2: "as notified by the Board, and as per such guidelines as notified by the Board."
  • Practical impact: Document 2 explicitly references both notification and guidelines as notified by the Board; effect is administrative - centralises authority with the Board for both notification and guidelines.
• Wording of sub-section (3) introductory phrase: Document 1: "fulfilling all of the following conditions:-" Document 2: "fulfilling the following conditions:-"
  • Practical impact: Purely stylistic with no substantive effect apparent from the texts provided.
• Minor drafting differences (numerical expression): Document 1 states the monetary threshold as "Rs. 10000 rupees"; Document 2 states "ten thousand rupees" (and in one place "ten thousand rupees" spelled out).
  • Practical impact: No substantive difference; only drafting form.
• Sub-section (9)(b) wording: Document 1 states the proviso shall be "deemed to be the income chargeable under the head 'Profits and gains of business or profession' of the tax year" whereas Document 2 omits the phrase "shall be deemed to be" and states "shall be the income chargeable under the head..."
  • Practical impact: Largely stylistic; both produce the same legal outcome that the recaptured amount is taxable under business income.

Practical Implications

• Compliance and risk areas: Taxpayers must ensure the business is not a reconstruction or splitting of an existing enterprise and that machinery previously used is not transferred to the specified business (with the 20% de minimis exception). Where regulatory approvals or Board notifications/guidelines are prerequisites (e.g., pipelines, semiconductor units), taxpayers must maintain documentary evidence of ownership, approvals, notifications and common-carrier capacity commitments where applicable.
• Record-keeping/evidence points: Capital expenditure capitalised pre-commencement must be reflected in books at commencement date; records of specified banking/online mode payments for capital items to satisfy sub-section (11)(g)(i) are necessary; agreements with government/statutory bodies and Board approvals should be retained; evidence to show continuous use for eight years (or exceptions) is required to avoid recapture.

Key Takeaways

• Clause 46 (old Bill) permits an elective full immediate deduction of capital expenditure for enumerated specified businesses, subject to conditions.
• Eligibility is constrained by anti-avoidance thresholds: no splitting/reconstruction, no transfer of previously used machinery (except limited 20% exception), and procedural/ownership/approval requirements for certain sectors.
• Where claimed, the deduction excludes certain other statutory deductions (explicitly section 144 and Chapter VIII-C) for the same expenditure.
• Assets benefiting from the deduction must be used solely for the specified business for eight years; otherwise recapture applies, computed after reducing allowable depreciation.
• Definitions are partly self-contained and partly by reference (notably "infrastructure facility" linked to section 80-IA(4) Explanation), creating interpretive dependencies.
• Cash payment limits and exclusions (land, goodwill, financial instruments) narrow the scope of capital expenditure eligible for immediate deduction.
• Taxpayers must maintain robust documentary evidence of approvals, notifications, bank/online payments, ownership and continuous use to substantiate claims and avoid recapture.

 

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Full Text:

Section 46 Capital expenditure of specified business.

Immediate deduction of capital expenditure for specified businesses, subject to conditions, approvals and an eight-year recapture rule. The Act permits an elective immediate deduction of whole capital expenditure incurred wholly and exclusively for specified businesses in the year of incurrence (or in year of commencement if pre-commencement cost is capitalised), subject to specified commencement dates, definitions and conditions. The deduction is disallowed where a business is formed by splitting/reconstruction or by transfer of previously used machinery (except a limited de minimis exception), requires specified approvals/notifications for certain sectors, excludes land/goodwill/financial instruments and cash over prescribed limits, and is subject to an eight-year sole-use recapture mechanism with depreciation adjustment.