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.