CA Bhuvnesh Goyal

Are you looking to understand about Rural development allowance ?  This detailed article will tell you all about Rural development allowance. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. Rural development is of utmost importance for the Indian government, and it has introduced various policies and schemes to uplift the socio-economic status of rural areas. One such measure is the Rural Development Allowance that comes under Section 35CC of the Income Tax Act. The primary objective of this allowance is to motivate businesses to take up rural development projects by providing them with a deduction of  of the amount spent on eligible projects from their taxable income. The projects that are eligible for the Rural Development Allowance include the establishment of essential infrastructure like schools, hospitals, roads, and bridges, as well as the promotion of rural industries such as handicrafts and handlooms. Other eligible projects comprise of providing fundamental amenities like clean drinking water, sanitation facilities, and electricity to the rural areas. However, these projects must be completed within three years of the financial year in which the expenditure was incurred, and they must not be undertaken in areas within the limits of a municipal corporation or cantonment board. To avail of the Rural Development Allowance, businesses must procure a certificate from the authorized entity certifying that the project meets the eligibility criteria. The certificate must be obtained before filing the tax return for the relevant year. It is essential to note that only businesses are eligible for the Rural Development Allowance, and not individuals. The Rural Development Allowance is a significant initiative towards promoting rural development and encouraging businesses to invest in rural India. It benefits businesses by reducing their tax liability, and it also contributes to the overall development of rural areas and improves the standard of living of the rural population. In conclusion, the Rural Development Allowance under Section 35CC of the Income Tax Act is a noteworthy step towards achieving sustainable rural development. It provides businesses with the opportunity to invest in the development of rural India and contribute to the growth of the country as a whole. section 35CC of Income Tax Act, 1961 Section 35CC, of Income Tax Act, 1961 states that  [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35CC was inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-9-1977.]

Are you looking to understand about Agricultural development allowance ?  This detailed article will tell you all about Agricultural development allowance. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. The Indian government has always demonstrated its unwavering commitment towards promoting and fostering the development of the agricultural sector, which is widely regarded as the backbone of the economy. To further support this initiative, the Income Tax Act, 1961, provides tax incentives to farmers, individuals, and companies engaged in agricultural development activities, including the Agricultural Development Allowance (ADA) under Section 35C of the Act. The ADA is a tax deduction granted to individuals involved in agricultural businesses such as horticulture, animal husbandry, and pisciculture. It allows a certain percentage of profits derived from eligible agricultural activities to be deducted, ultimately resulting in a reduction in tax liability. To qualify for the ADA, one must fulfill specific prerequisites, including active engagement in the agricultural business, incurring expenses towards developing agricultural infrastructure and facilities, generating profits from the agricultural activity during the previous year, and maintaining comprehensive books of account to claim the allowance. The ADA’s percentage is subject to review and approval by the central government and can fluctuate annually. Presently, it stands at 20% of profits derived from eligible agricultural activities. For instance, if an individual involved in horticulture spent Rs. 10 lakhs in the previous year to construct a greenhouse and purchase irrigation equipment, and earned Rs. 50 lakhs in profits from horticulture business, the ADA can be calculated by applying 20% of Rs. 50 lakhs, amounting to Rs. 10 lakhs. Consequently, the individual can claim a deduction of Rs. 10 lakhs from the taxable income, resulting in a reduction in tax liability. The Agricultural Development Allowance is a crucial tax incentive that encourages investments in agricultural infrastructure and facilities. It helps to spur growth and development in the agricultural sector. As such, eligible taxpayers should take advantage of this provision to reduce their tax liability. However, it is imperative to maintain accurate records and comply with the Income Tax Act’s rules and regulations to claim the allowance. section 35C of Income Tax Act, 1961 Section 35C, of Income Tax Act, 1961 states that [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35C was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.]

Are you looking to understand about Export markets development allowance ?  This detailed article will tell you all about Export markets development allowance. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. Export Markets Development Allowance (EMDA) is a tax incentive program initiated by the Indian government under Section 35B of the Income Tax Act, 1961. This program aims to promote the expansion of export markets by reimbursing a portion of expenses incurred in promoting exports. In this article, we will discuss the key aspects of EMDA and how it can benefit Indian exporters. EMDA provides Indian companies engaged in the export of goods or services with a deduction of a specific percentage of their eligible expenses incurred on promoting exports. Such expenses may include advertising costs, market research, publicity campaigns, trade fairs, and exhibitions. To qualify for EMDA, a company must satisfy specific eligibility criteria. Firstly, the company must be involved in the business of exporting goods or services. Secondly, the company must have earned foreign exchange during the previous year. Thirdly, the company must have incurred eligible expenses during the previous year. Lastly, the company must hold a certificate of eligibility issued by the Director-General of Foreign Trade. EMDA offers various advantages to Indian exporters, including the promotion of the expansion of export markets, reduction of tax liability, enhancement of competitiveness of Indian companies in the global market by providing a financial incentive to promote exports, and covering a wide range of expenses incurred in promoting exports. To claim EMDA, a company must follow specific procedures. Firstly, the company must obtain a certificate of eligibility from the Director-General of Foreign Trade. Secondly, the eligible expenses incurred in promoting exports must be computed. Finally, the company must claim a deduction of the eligible amount while filing its income tax return. In conclusion, EMDA is a useful program for Indian exporters, which encourages them to expand their export markets. The program provides several benefits, including reducing tax liability, increasing competitiveness, and covering a wide range of expenses. To be eligible for EMDA, a company must meet certain eligibility criteria and comply with the required procedures.   section 35B of Income Tax Act, 1961 Section 35B, of Income Tax Act, 1961 states that [Omitted by the Direct Tax Laws (Amendment) Act, 1987, as amended by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989. Original section 35B was inserted by the Finance Act, 1968, w.e.f. 1-4-1968.]

Are you looking to understand about Deduction in respect of expenditure on specified business ?  This detailed article will tell you all about Deduction in respect of expenditure on specified business. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. The Income Tax Act, 1961, introduced Section 35AD as a provision that grants tax deductions and exemptions to businesses in India. This provision allows for a deduction to be claimed in respect of expenditure incurred on specified businesses, and it was created in 2010 to encourage investment in several sectors, including infrastructure, hotels, hospitals, and power generation plants, among others. Any individual, company, firm, association of persons, or body of individuals that incurs expenditure on specified businesses can claim the deduction, which depends on the type of specified business. Specified businesses covered under Section 35AD encompass a variety of sectors, such as the development and construction of housing projects or notified SEZ, operating hospitals with at least 100 beds, and generating power, among others. For instance, if an individual or entity establishes and operates a cold chain facility, the deduction will be  of the capital expenditure incurred on the project. Similarly, if an individual or entity sets up and operates a hospital with at least 100 beds, the deduction will be  of the capital expenditure incurred on the project. To claim the deduction, the individual or entity must obtain a certificate from an eligible authority certifying that the specified business has been established and is operational. The eligible authority differs based on the type of specified business. Once the certificate has been obtained, the individual or entity can claim the deduction in the income tax return for the relevant assessment year, under the head “Business or Profession.” In summary, Section 35AD offers significant tax benefits to businesses investing in specified sectors. Nonetheless, it is critical to grasp the provisions and eligibility criteria to ensure that the deduction is claimed accurately. Seeking advice from a tax professional is always advisable for any tax-related issues.   section 35AD of Income Tax Act, 1961 Section 35AD, of Income Tax Act, 1961 states that (1) An assessee shall 55[, if he opts,] be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him : Provided that the expenditure incurred, wholly and exclusively, for the purposes of any specified business, shall be allowed as deduction during the previous year in which he commences operations of his specified business, if— (a)  the expenditure is incurred prior to the commencement of its operations; and (b)  the amount is capitalised in the books of account of the assessee on the date of commencement of its operations. (1A) [***] (2) This section applies to the specified business which fulfils all the following conditions, namely :—  (i)  it is not set up by splitting up, or the reconstruction, of a business already in existence; (ii)  it is not set up by the transfer to the specified business of machinery or plant previously used for any purpose; (iii) where the business is of the nature referred to in sub-clause (iii) of clause (c) of sub-section (8), such business,—  (a)  is owned by a company formed and registered in India under the Companies Act, 1956 (1 of 1956)56 or by a consortium of such companies or by an authority or a board or a corporation established or constituted under any Central or State Act;  (b)  has been approved by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the Central Government in the Official Gazette in this behalf;  (c)  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 sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006) available for use on common carrier basis by any person other than the assessee or an associated person; and  (d)  fulfils any other condition as may be prescribed; (iv) where the business is of the nature referred to in sub-clause (xiv) of clause (c) of sub-section (8), such business,— (A)  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 constituted under any Central or State Act; (B)  entity referred to in sub-clause (A) has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining, a new infrastructure facility. (3) Where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of section 10AA and Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” in relation to such specified business for the same or any other assessment year. (4) No deduction in respect of the expenditure referred to in sub-section (1) shall be allowed to the assessee under any other section in any previous year or under this section in any other previous year 57[, if the deduction has been claimed or opted by the assessee and allowed to him under this section]. (5) The provisions of this section shall apply to the specified business referred to in sub-section (2) if it commences its operations,— (a)  on or after the 1st day of April, 2007, where the specified business is in the nature of laying and operating a cross-country natural gas

Are you looking to understand about Expenditure on eligible projects or schemes ?  This detailed article will tell you all about Expenditure on eligible projects or schemes. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. Section 35AC of the Indian Income Tax Act, introduced in 1993, offers an opportunity for individuals and companies to claim tax deductions for the amount spent on eligible projects or schemes. The main objective of this section is to stimulate investment in initiatives that promote social and economic development and benefit the country. In this article, we will examine the provisions and eligibility criteria of Section 35AC in greater detail. Provisions of Section 35AC Section 35AC permits tax deduction for eligible projects or schemes, and this deduction is available to both individuals and companies. The expense must be incurred on approved social and economic projects or schemes, as authorized by the National Committee for the Promotion of Social and Economic Welfare (NCSEW). The tax deduction under Section 35AC can be claimed in the assessment year in which the expenditure is incurred, subject to the timely completion of the project or scheme as specified by the NCSEW. The deduction is not available for expenses incurred after the project’s completion. Eligibility criteria for claiming tax deductions To claim tax deductions under Section 35AC, the expenditure must be incurred on eligible projects or schemes that meet the following eligibility criteria: The project or scheme must be sanctioned by the NCSEW. The project or scheme must be related to social and economic development. The project or scheme must not be for the benefit of any particular caste, community, or religion. The project or scheme must be completed within the time frame specified by the NCSEW. The expenditure must be incurred on capital expenditure, excluding land, building, or furniture. The expenditure must be incurred for the purpose of implementing the project or scheme. Examples of eligible projects or schemes Some eligible projects or schemes for claiming tax deductions under Section 35AC include: Establishing and operating a hospital for underprivileged communities. Providing free education to children from disadvantaged backgrounds. Building and managing a residential facility for elderly citizens. Setting up and operating a vocational training center for people with disabilities. Creating and maintaining a public park. Conclusion Section 35AC of the Income Tax Act provides tax deductions for eligible projects or schemes that promote social and economic development in India. To claim these deductions, the projects or schemes must be authorized by the NCSEW and fulfill specific eligibility criteria. It is a valuable measure for individuals and companies who wish to invest in socially responsible initiatives while also reducing their tax liability.   section 35AC of Income Tax Act, 1961 Section 35AC, of Income Tax Act, 1961 states that (1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved46 by the National Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year : Provided that a company may, for claiming the deduction under this sub-section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme. (2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate— 47(a)  where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (1), from such public sector company or local authority or, as the case may be, association or institution; 48(b) in any other case, from an accountant, as defined in the Explanation below sub-section (2) of section 288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed. Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee,— (a)  the approval granted to such association or institution has been withdrawn; or (b)  the notification notifying the eligible project or scheme carried out by the public sector company or local authority or association or institution has been withdrawn. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. (4) Where an association or institution is approved by the National Committee under sub-section (1), and subsequently—  (i)  that 49[the Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted; or (ii)  such association or institution, to which approval has been granted, has not furnished to the 50[Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)], after the end of each financial year, a report in such form and setting forth such particulars and within such time as may be prescribed51, the 50[Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw

Are you looking to understand about Expenditure for obtaining licence to operate telecommunication services ?  This detailed article will tell you all about Expenditure for obtaining licence to operate telecommunication services. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. In India, companies seeking to operate telecommunication services must first acquire a license from the Department of Telecommunications (DoT). However, in addition to the licensing process, telecom companies also need to bear expenses for spectrum acquisition, infrastructure development, and equipment purchase. These costs are necessary for starting a new telecom business and are considered as capital expenditures. The Income Tax Act, 1961, provides deductions for expenses incurred during business activities. Section 35ABB of the Income Tax Act allows deductions for expenses incurred in obtaining a license to operate telecommunication services. Under Section 35ABB, expenses incurred in acquiring a license to operate telecommunication services can be deducted in ten equal installments. The deduction is only available to companies engaged in the telecommunication services industry. The deduction is available from the year in which the license is acquired, but it cannot be claimed if the license is acquired through transfer from another person. The deduction amount allowed in a given year is limited to the income earned by the company from telecommunication services. It should be noted that the expenses incurred in obtaining a license are distinct from the costs incurred in acquiring spectrum. Expenses incurred in acquiring spectrum are classified as capital expenditures and are eligible for depreciation under Section 32 of the Income Tax Act. In summary, expenses incurred in obtaining a license to operate telecommunication services are regarded as capital expenditures and are eligible for deductions under Section 35ABB of the Income Tax Act. The deduction is allowed in ten equal installments over a period of ten years, subject to the company being engaged in the telecommunication services industry.   section 35ABB of Income Tax Act, 1961 Section 35ABB, of Income Tax Act, 1961 states that (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. Explanation.—For the purposes of this section,— (i)  “relevant previous years” means,—  (A)  in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced;  (B)  in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force; (ii)  “appropriate fraction” means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years; (iii) “payment has actually been made” means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee. (2) Where the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer, shall be allowed in respect of the previous year in which the licence is transferred. (3) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred to obtain the licence and the amount of such expenditure remaining unallowed shall be chargeable to income-tax as profits and gains of the business in the previous year in which the licence has been transferred. Explanation.—Where the licence is transferred in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year. (4) Where the whole or any part of the licence is transferred and the proceeds of the transfer (so far as they consist of capital sums) are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed under sub-section (1) in respect of the previous year in which the licence is transferred or in respect of any subsequent previous year or years. (5) Where a part of the licence is transferred in a previous year and sub-section (3) does not apply, the deduction to be allowed under sub-section (1) for expenditure incurred remaining unallowed shall be arrived at by— (a)  subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed; and (b)  dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the licence is transferred. (6) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers the licence to the amalgamated company (being an Indian company),—  (i)  the provisions of sub-sections (2), (3) and (4) shall not apply in the case of the amalgamating company; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating

Are you looking to understand about Expenditure for obtaining right to use spectrum for telecommunication services ?  This detailed article will tell you all about Expenditure for obtaining right to use spectrum for telecommunication services. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. Telecommunications services are an integral part of modern society, enabling individuals to connect across vast distances and businesses to operate seamlessly across borders. However, to provide these services, telecommunications firms require access to a limited resource known as the electromagnetic spectrum. The right to use this spectrum is granted by the government, and companies must pay for it, which can result in significant expenses for telecommunications companies. In India, Section 35ABA of the Income Tax Act provides a deduction for expenditures incurred by telecommunication companies in obtaining the right to use the spectrum for telecommunication services. This section was introduced in the Finance Act of 2016 and has been applicable since the assessment year 2017-18. Under Section 35ABA, companies can claim a deduction equal to the expenses incurred in obtaining the right to use the spectrum for telecommunication services. The deduction can be claimed over a period of ten years, in ten equal installments starting from the year the right to use the spectrum was obtained. For instance, if a company paid INR 100 crores to obtain the right to use the spectrum, it could claim a deduction of INR 10 crores per year for the next ten years. It’s essential to note that the deduction only applies to expenses incurred in obtaining the right to use the spectrum for telecommunication services. Any other expenses related to the operation of telecommunication services, such as network infrastructure or marketing expenses, are not eligible for the deduction. To claim the deduction under Section 35ABA, telecommunication companies must maintain separate books of accounts for the expenses incurred in obtaining the right to use the spectrum. These books of accounts must be audited by a chartered accountant, and the auditor must submit a report to the income tax authorities verifying the amount of expenditure incurred. Lastly, it should be noted that the deduction under Section 35ABA is only available to companies engaged in the business of providing telecommunication services. Companies engaged in other businesses, even if they have obtained the right to use the spectrum for their operations, are not eligible. Overall, Section 35ABA of the Income Tax Act provides much-needed relief to telecommunication companies, enabling them to spread the significant expenses associated with obtaining the right to use the spectrum over ten years. By doing so, the Indian government has given a crucial boost to the telecommunications industry, which is a crucial enabler of economic growth.   section 35ABA of Income Tax Act, 1961 Section 35ABA, of Income Tax Act, 1961 states that (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to use spectrum for telecommunication services either before the commencement of the business or thereafter at any time during any previous year and for which payment has actually been made to obtain a right to use spectrum, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure. (2) The provisions contained in sub-sections (2) to (8) of section 35ABB, shall apply as if for the word “licence”, the word “spectrum” had been substituted. (3) Where, in a previous year, any deduction has been claimed and granted to the assessee under sub-section (1), and, subsequently, there is failure to comply with any of the provisions of this section, then,— (a)  the deduction shall be deemed to have been wrongly allowed; (b)  the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary rectification; (c)  the provisions of section 154 shall, so far as may be, apply and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the provisions of this section takes place. Explanation.—For the purposes of this section,—  (i)  “relevant previous years” means,— (A)  in a case where the spectrum fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced; (B)  in any other case, the previous years beginning with the previous year in which the spectrum fee is actually paid, and the subsequent previous year or years during which the spectrum, for which the fee is paid, shall be in force; (ii)  “appropriate fraction” means the fraction, the numerator of which is one and the denominator of which is the total number of the relevant previous years; (iii) “payment has actually been made” means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee or payable in such manner as may be prescribed44.

Section 35AB, of Income Tax Act, 1961 states that (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year relevant to the assessment year commencing on or before the 1st day of April, 1998 any lump sum consideration for acquiring any know-how for use for the purposes of his business, one-sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous years. (2) Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution referred to in sub-section (2B) of section 32A, one-third of the said lump sum consideration paid in the previous year by the assessee shall be deducted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. (3) Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this section in respect of such undertaking to the same extent and in respect of the residual period as it would have been allowable to the amalgamating company or the demerged company, as the case may be, had such amalgamation or demerger not taken place. Explanation.—For the purposes of this section, “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto). section 35AB of Income Tax Act, 1961 Are you looking to understand about Expenditure on know-how ?  This detailed article will tell you all about Expenditure on know-how. Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning. Section 35AB of the Indian Income Tax Act grants taxpayers a deduction for expenses incurred in obtaining specialized knowledge related to their business or profession. Such know-how is defined as technical expertise or experience that is not publicly available and can be acquired through research and development or by collaborating with industry experts. While investing in this kind of knowledge can be expensive, it can provide significant long-term benefits such as increased efficiency and profitability. Expenses eligible for deduction under section 35AB include payments for the purchase, acquisition, or use of patents, inventions, designs, trade secrets, and other similar property rights. Furthermore, expenses related to the use of industrial, commercial, or scientific equipment, technical information, or assistance can also be included. It is crucial to note that the expenses must be incurred wholly and exclusively for acquiring know-how relevant to the taxpayer’s business or profession, and must be recognized as an asset in their accounting records. To claim a deduction under section 35AB, the taxpayer must furnish a report from a chartered accountant verifying that the expenses were incurred for the purpose of obtaining know-how related to their business or profession. Moreover, the know-how acquired must be used for the purpose of the business or profession. The deduction is equal to the expenses incurred, but it is limited to 25% of the taxpayer’s total income for the previous year. Any unutilized deduction amount can be carried forward and claimed in subsequent years. In conclusion, section 35AB provides a valuable incentive for businesses to invest in cutting-edge technologies, processes, and expertise by allowing a deduction for expenses incurred in acquiring specialized knowledge. However, it is critical to ensure that the expenses are wholly and exclusively incurred for obtaining relevant know-how and that the acquired knowledge is used for the business or profession’s purpose. Failure to comply with these requirements may result in the disallowance of the deduction and additional tax liabilities.