Section 46 · Computation of total income
Section 46 of the Income-tax Act, 2025 — Capital Expenditure of Specified Business (100% Deduction, Successor to Section 35AD)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 46, Income-tax Act 2025
46. (1) An assessee, at his option, shall be allowed a deduction of the whole of
the capital expenditure incurred, wholly and exclusively, for the purposes of any
specified business carried on by him during the tax year in which such expenditure
is incurred.
(2) Where the expenditure referred to in sub-section (1) is incurred prior to the
commencement of its operations and such expenditure is capitalised in the books
of account as on the date of commencement of its operations, it shall be allowed
during the tax year in which such business is commenced.
(3) This section shall apply to the specified business fulfilling all of the following
conditions:—
(a) it is not set up by splitting up, or the reconstruction, of an already existing
business;
(b) it is not set up by the transfer of machinery or plant previously used for
any purpose to the specified business;
(c) if the business is of the nature referred to in sub-section (11)(d)(iii)
and such business—
(i) is owned by a company formed and registered in India under the
Companies Act, 2013 (18 of 2013) or by a consortium of such com-
panies or by an authority or a board or a corporation established
or constituted under any Central Act or State Act;
(ii) has been approved by the Petroleum and Natural Gas Regulatory
Board established under section 3(1) of the Petroleum and Natural
Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the
Central Government in this behalf;
(iii) has made not less than such proportion of its total pipeline capacity
as specified by regulations made by the Petroleum and Natural Gas
Regulatory Board established under section 3(1) of the Petroleum
and Natural Gas Regulatory Board Act, 2006 (19 of 2006) availa-
ble for use on common carrier basis by any person other than the
assessee or an associated person; and
(iv) fulfils any other condition as may be prescribed;
(d) if the business is of the nature referred to in sub-section (11)(d)(xiv),
such business,—
(i) is owned by a company registered in India or by a consortium of
such companies or by an authority or a board or corporation or
any other body established or con
In plain language
What Section 46 says in plain English
Section 46 of the Income-tax Act, 2025 lets a taxpayer claim a 100% deduction of the whole capital expenditure incurred wholly and exclusively for running a "specified business" — in the very year the money is spent. This is a big deal, because normally when a business buys a building, plant or machinery it can only recover the cost slowly, year after year, through depreciation. Section 46 collapses that into a single upfront write-off. It is the direct successor to the old Section 35AD of the Income-tax Act, 1961, carried forward into the new Act (effective 1 April 2026) with the substance unchanged.
Who can claim it
- Any assessee — individual, HUF, firm, company, LLP — carrying on one of the notified "specified businesses".
- The deduction is at the taxpayer's option: you choose to claim it. It is not forced on you.
- It is available only under the old (normal) tax regime. If you opt for the concessional regime under Section 115BAA/115BAB-type provisions, this incentive is generally not available.
The 14 specified businesses
Only businesses on the notified list qualify, and each has a "commence on or after" date. Examples include cold chain facilities, warehousing for agricultural produce, cross-country natural gas/crude/petroleum pipelines, building and operating a hospital with at least 100 beds, a two-star-or-above hotel, affordable and slum-redevelopment housing, fertiliser production, inland container depots, bee-keeping, sugar warehousing, iron-ore slurry pipelines, semiconductor fabrication and infrastructure facilities. See the table below for the full list with dates.
Key conditions and limits
- New business only: it must not be formed by splitting up or reconstructing an existing business.
- No second-hand plant: it must not be set up by transferring machinery or plant previously used for any purpose (limited exceptions apply, similar to the old 20% relaxation).
- Land, goodwill and financial instruments are excluded — expenditure on acquiring these does not qualify, even though they are capital in nature.
- Cash payment cap: any single-day payment above ₹10,000 to a person made otherwise than by banking channel or prescribed electronic mode is disallowed.
- Pre-commencement spend qualifies: capital expenditure incurred before operations begin is allowed in the year of commencement, provided it is capitalised in the books on that date.
- Regulatory approvals: pipelines need Petroleum and Natural Gas Regulatory Board approval and must offer common-carrier capacity; infrastructure facilities need a government agreement.
The 8-year lock-in and clawback
The asset on which you claim the deduction must be used exclusively for the specified business for 8 years starting from the year of acquisition/construction. If within those 8 years the asset is used for something else, the deduction earlier allowed (reduced by the notional depreciation that would otherwise have been available) is added back as business income in the year of diversion. A relaxation historically applied to companies declared "sick".
How it interacts with other sections
- No depreciation double-dip: if you claim Section 46, you cannot also claim depreciation on the same expenditure under the Chapter dealing with depreciation.
- Loss ring-fencing: a loss from a specified business can be set off only against profits of another specified business, and carried forward indefinitely (see Section 114 of the 2025 Act, the successor to Section 73A of the 1961 Act) — provided the return is filed by the due date.
- No deduction elsewhere: the same expenditure cannot be claimed under any other section, in this or any other year.
Practical implications
Section 46 front-loads tax savings, which improves early-year cash flow and internal rate of return for capital-heavy projects like hospitals, cold chains and pipelines. But it comes with strings: strict record-keeping, a long 8-year commitment, exclusion of land cost (often the biggest cheque), and loss ring-fencing that can trap losses if you have no other specified business. Investors should model the clawback risk before diversifying an asset's use.
💡 Example
Example 1 — A new 120-bed hospital. Dr. Mehta's company builds a 120-bed hospital that commences operations in FY 2026-27. It spends ₹40 crore on the building and medical equipment, plus ₹15 crore on the land. Under Section 46, the ₹40 crore (building + equipment) qualifies for a 100% deduction in FY 2026-27, but the ₹15 crore land cost is excluded. So the company deducts ₹40 crore straight away, instead of claiming, say, ₹4 crore of depreciation a year for a decade. If the hospital's revenue that year is only ₹6 crore, it creates a large specified-business loss that carries forward — but can be set off only against future specified-business profits.
Example 2 — Cash payment trap. A cold-chain company buys a ₹9 crore refrigeration plant. It pays ₹8,90,000 by RTGS (fine) but also pays a contractor ₹25,000 in cash on a single day for installation. That ₹25,000 slice is disallowed because it breaches the ₹10,000-per-day banking-channel rule; the rest of the ₹9 crore remains fully deductible.
A short story. Priya runs a small warehouse storing agricultural produce that she set up in 2027. Her CA tells her that instead of writing off her ₹6 crore warehouse over 15 years, she can claim the whole amount under Section 46 in year one. Delighted, she does — and her taxable income drops to zero. Three years later she gets an offer to lease half the warehouse to a garment exporter. Her CA warns her: converting it to non-specified use before 8 years are up will trigger a clawback of the deduction she enjoyed. Priya decides to wait out the lock-in.
| Specified business (Section 46) | Must commence on or after | Deduction |
|---|
| Cold chain facility | 1 April 2009 | 100% |
| Warehousing for agricultural produce | 1 April 2009 | 100% |
| Cross-country natural gas / crude / petroleum pipeline network | 1 April 2007 | 100% |
| Two-star or above hotel (anywhere in India) | 1 April 2010 | 100% |
| Hospital with at least 100 beds | 1 April 2010 | 100% |
| Slum redevelopment / rehabilitation housing | 1 April 2010 | 100% |
| Affordable housing project | 1 April 2011 | 100% |
| Production of fertiliser in India | 1 April 2011 | 100% |
| Inland container depot / container freight station | 1 April 2012 | 100% |
| Bee-keeping and production of honey and beeswax | 1 April 2012 | 100% |
| Warehousing for storage of sugar | 1 April 2012 | 100% |
| Iron-ore slurry pipeline | 1 April 2014 | 100% |
| Semiconductor wafer fabrication unit | 1 April 2014 | 100% |
| Infrastructure facility (govt agreement) | 1 April 2017 | 100% |
Related sections
Section 33 — Depreciation allowance on assets Section 45 — Expenditure on scientific research Section 114 — Carry forward and set-off of losses of specified business (old 73A) Section 47 — Amortisation of preliminary and certain other expenditure Section 26 — Profits and gains of business or profession chargeable to tax Section 189 — Alternate Minimum Tax (AMT) on adjusted total income
Frequently asked questions
Is Section 46 of the 2025 Act the same as Section 35AD of the old Act?
Yes. Section 46 is the successor to Section 35AD of the Income-tax Act, 1961. The 100% deduction, the specified-business list, the 8-year lock-in and the loss-ring-fencing rules are carried forward substantially unchanged into the new Act effective 1 April 2026.
Can I claim both Section 46 and depreciation on the same asset?
No. If you claim the full capital expenditure under Section 46, you cannot also claim depreciation on that same expenditure. Choosing one bars the other for that asset.
Does the cost of land qualify for the deduction?
No. Expenditure on acquiring land, goodwill or financial instruments is specifically excluded, even though it is capital in nature. Only qualifying capital spend such as buildings, plant and equipment is eligible.
What happens if I use the asset for a different business before 8 years?
A clawback applies. The deduction earlier allowed, reduced by the depreciation that would otherwise have been available, is added back as your business income in the year the asset is put to non-specified use.
Can a loss from a specified business be set off against my salary or other business income?
No. Such a loss can be set off only against profits of another specified business. It can be carried forward indefinitely (under Section 114 of the 2025 Act) if you file your return by the due date.
Is there a limit on paying vendors in cash?
Yes. Any single-day payment above ₹10,000 to a person made otherwise than through a banking channel or prescribed electronic mode is disallowed for the deduction. Keep large payments on the banking rails.
Is Section 46 available under the new concessional tax regime?
Generally no. Investment-linked incentives like Section 46 are available under the normal/old regime. If you opt for a concessional regime, you typically forgo this deduction, so compare both before choosing.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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