RBI September 2026: What Income Tax Implications for Corporate Investment Growth

What Happened?

The Reserve Bank of India released its September 2026 Bulletin highlighting a robust Indian economy growing at 7.8% in Q1:2026-27. A key highlight is the private corporate sector's strong investment intentions, with planned capital expenditure (capex) estimated at ₹3.2 lakh crore for 2026-27. The infrastructure and power sectors are leading this investment wave, indicating sustained momentum in business expansion and modernization across India.

Background & Legal Context

For income tax purposes, capital expenditure by corporations has significant implications under the Income Tax Act 2025. Here's what you need to understand:

• Section 32 (Depreciation) – Capital assets acquired for business purposes qualify for depreciation. Corporate taxpayers can claim depreciation on plant & machinery, buildings, and other fixed assets used for business. The depreciation rate depends on the nature of asset.
• Section 35 (Scientific Research)  – If capex is on scientific research, businesses get accelerated depreciation or deduction benefits, encouraging innovation.
• Section 43 (Cost of Assets) – Capital expenditure is capitalized (added to asset cost) and depreciated over the asset's useful life. It cannot be claimed as revenue expenditure in the year of purchase.
• Section 37 (Revenue Expenditure) – Only expenses for business purposes that are revenue in nature get immediate deduction. Capital expenditure is explicitly excluded.
• Section 10AA (Infrastructure Fund) – Investments in certain infrastructure projects may qualify for specific tax benefits under the Income Tax Act 2025.
• New Provisions under IT Act 2025 – The updated Act continues to incentivize capital investment through depreciation benefits, and recent amendments allow for better timing of depreciation claims, especially for assets acquired mid-year.

Additionally, under Form 4F (Capital Assets details), taxpayers must report all capital assets acquired during the financial year. For Assessment Year 2026-27 (FY 2025-26), all capex made between April 2025 and March 2026 must be clearly documented and reported.

What Does This Mean for You?

For Corporate Taxpayers:

If your company is planning capital expenditure in FY 2025-26 or FY 2026-27, here are the key income tax implications:

• Depreciation Planning – Capital investments cannot be deducted immediately. Instead, you'll claim depreciation over multiple years. Under Section 32 of IT Act 2025, the depreciation rate for plant & machinery is typically 15% (written down value method). This means a ₹100 lakh capex on machinery will give you depreciation deductions spread over many years, reducing your taxable income gradually.
• Mid-Year Acquisitions – Assets acquired after March 31, 2025, will get depreciation from the next financial year. If you buy an asset on January 1, 2026, depreciation starts in FY 2026-27 (AY 2027-28). Plan your purchases accordingly to optimize depreciation timing.
• Infrastructure Sector Benefits – Since the RBI Bulletin highlights infrastructure as the major investment sector, if your company operates in power, roads, ports, or telecom, you may qualify for specific depreciation rates. Power sector assets may have different useful life assumptions, affecting depreciation calculations.
• Balance Sheet Impact – The RBI's observation about banks' credit-deposit ratios shows increased lending to private corporates. If you're borrowing for capex, remember that interest on borrowed funds is deductible as revenue expenditure under Section 36(1)(iii), even if the funds are used for capital assets. This provides immediate tax relief on financing costs.
• GST on Capital Goods – While not explicitly Income Tax, if your capex involves GST-registered goods, you'll claim Input Tax Credit (ITC) under GST law. This is separate from Income Tax depreciation and helps recover GST paid on capital purchases.

For Non-Corporate Businesses (Sole Proprietors & Partnerships):

If you're a self-employed individual or partnership investing in business assets, the same Section 32 depreciation rules apply. Report all capital assets in Schedule AL when filing your ITR.

For Investors in Corporate Shares/Bonds:

If you're investing in shares of companies making high capex, remember that dividends received are taxable under Section 56 of IT Act 2025 (at the recipient's slab rate if dividend is above ₹5,000). Capital gains on sale of these shares attract Section 48 taxation (short-term) or Section 46-47 (long-term, with indexation benefit).

What Should You Do Now?

• Document All Capex Plans – If your business plans capital investments in FY 2025-26, document the acquisition date, cost, nature of asset, and useful life. Maintain invoices and purchase agreements for Income Tax audit purposes under Section 44AB.
• Segregate Capital vs. Revenue – Review your expenses carefully. Routine repairs (revenue) cannot be capitalized. Only new acquisitions or improvements that enhance asset value qualify as capital expenditure. The distinction is critical for IT Act 2025 compliance.
• Plan Depreciation Timing – Consult your CA before buying assets. If you purchase an asset on March 20, 2026, vs. April 5, 2026, the depreciation timeline differs significantly, affecting your tax liability in AY 2026-27 and beyond.
• Review Useful Life Assumptions – Under IT Act 2025, the useful life of assets can be reassessed. For manufacturing equipment, this might be 8-10 years; for buildings, 30+ years. Ensure your depreciation schedule aligns with Schedule II of the Act.
• GST Compliance Linked to IT – If you're GST-registered, file GSTR-3B on time and claim ITC for capital goods purchases. Later reconcile this with your Income Tax depreciation claim to avoid mismatch notices.
• Audit Trail – Maintain clear links between GST invoices (input documents), bank statements (payment proof), and Income Tax returns (capital asset schedules). This strengthens your position during IT audits under Section 142(1).
• Entity Type Matters – If you're a Limited Company filing financial statements under the Companies Act 2013, ensure depreciation under IT Act 2025 matches your books. Any permanent differences must be tracked in your reconciliation statement during ITR filing.

Key Takeaways

• ₹3.2 Lakh Crore Capex Coming: The RBI Bulletin signals strong private investment momentum. If your company is part of this growth, ensure proper capital asset documentation for IT Act 2025 compliance.
• Depreciation, Not Deduction: Capital expenditure cannot be fully deducted in the year of purchase. You'll claim depreciation annually under Section 32 over the asset's useful life, reducing taxable income gradually.
• Infrastructure Sector Gets Focus: Power and infrastructure companies benefit from specific depreciation rates. Review your applicable rates if your business falls under these sectors.
• Finance Cost Relief Available: Interest on borrowed funds for capex is immediately deductible under Section 36(1)(iii), providing upfront tax savings while you depreciate the asset cost.
• GST-Income Tax Coordination: Claim Input Tax Credit on capital purchases under GST law while simultaneously recording them as depreciable assets under Income Tax Act 2025. Both regimes must be aligned to avoid scrutiny.

Final Word: The RBI's positive outlook on corporate investment means more businesses will undertake capex in FY 2025-26 and beyond. However, improper capitalization or depreciation can trigger income tax scrutiny. Engage with your CA early to structure these investments tax-efficiently under the Income Tax Act 2025.

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