Capital expenditure of specified business
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 46(1) of 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.
Section 46(2) of Income Tax Act 2025
46(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.
Section 46(3) of Income Tax Act 2025
46(3) This section shall apply to the specified business fulfilling 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 or by a consortium of such companies 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 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 available for use on common carrier basis by any person other than the assessee or an associated person; and
- (iv) fulfils any other condition as 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 constituted under any Central Act or State Act;
- (ii) entity referred to in sub-clause (i) 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.
Section 46(4) of Income Tax Act 2025
46(4) No deduction shall be allowed under the provisions of section 144 and Chapter VIII-C in relation to such specified business for the same or any other tax year, if a deduction under sub-section (1) is claimed and allowed.
Section 46(5) of Income Tax Act 2025
46(5) 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 tax year or under this section in any other tax year, if the deduction has been claimed and allowed to him under this section.
Section 46(6) of Income Tax Act 2025
46(6) The provisions of this section shall apply to the specified business referred to in column B of the Table below if it commences its operations as specified in column C thereof.
Table
| Sl. No. | Nature of specified business | Date of commencement of operations being on or after |
|---|---|---|
| A | B | C |
| 1 | Laying and operating a cross country natural gas pipeline network for distribution, including storage facilities being an integral part of such network | 1st April, 2007 |
| 2 | Building and operating a new hotel of two-star or above category as classified by the Central Government. | 1st April, 2010 |
| 3 | Building and operating a new hospital with at least 100 beds for patients. | 1st April, 2010 |
| 4 | Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as notified by the Board, as per the guidelines as notified by the Board. | 1st April, 2010 |
| 5 | Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as notified by the Board, as per the guidelines notified by the Board. | 1st April, 2011 |
| 6 | A new plant or a newly installed capacity in an existing plant for production of fertilizer. | 1st April, 2011. |
| 7 | Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962 (52 of 1962). | 1st April, 2012. |
| 8 | Bee-keeping and production of honey and beeswax. | 1st April, 2012 |
| 9 | Setting up and operating a warehousing facility for storage of sugar. | 1st April, 2012 |
| 10 | Laying and operating a slurry pipeline for the transportation of iron ore. | 1st April, 2014. |
| 11 | Setting up and operating a semiconductor wafer fabrication manufacturing unit, as notified by the Board, and as per such guidelines as notified by the Board. | 1st April, 2014. |
| 12 | Developing, or operating and maintaining, or developing, operating and maintaining, any infrastructure facility. | 1st April, 2017. |
| 13 | In all other cases. | Th 1st April, 2009. |
Section 46(7) of Income Tax Act 2025
46(7) Where the assessee builds a hotel of two star or above category as classified by the Central Government and subsequently, transfers the hotel operation thereof to another person while retaining its ownership, the assessee shall be deemed to be carrying on the specified business referred to in sub-section (11)(d)(iv).
Section 46(8) of Income Tax Act 2025
46(8) The provisions contained in sections 122(6) and 138(18) and (23) shall, so far as may be, apply to this section in respect of goods or services or assets held for the purposes of the specified business.
Section 46(9) of Income Tax Act 2025
46(9) Any asset for which a deduction is claimed and allowed under this section––
- (a) shall be used only for the specified business for a period of eight years beginning with the tax year in which such asset is acquired or constructed;
- (b) is used for the purpose and period other than that referred to in clause (a), and is not chargeable to tax under section 26(2)(k), then the total amount of deduction so claimed and allowed in one or more tax years, as reduced by the amount of depreciation allowable under section 33, as if no deduction under this section was allowed, shall be the income chargeable under the head “Profits and gains of business or profession” of the tax year in which the asset is so used.
Section 46(10) of Income Tax Act 2025
46(10) The provisions of sub-section (9)(b) shall not apply to a company which has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, as it stood before its repeal by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 during the period specified in sub-section (9)(a).
Section 46(11) of Income Tax Act 2025
46(11) In this section,—
- (a) “associated person”, in relation to the assessee, means a person,—
- (i) who participates, directly or indirectly, or through one or more intermediaries in the management or control or capital of the assessee;
- (ii) who holds, directly or indirectly, shares carrying at least 26% of the voting power in the capital of the assessee;
- (iii) who appoints more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of the assessee; or
- (iv) who guarantees at least 10% of the total borrowings of the assessee;
- (b) “cold chain facility” means a chain of facilities for storage or transportation of agricultural and forest produce, meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and apiculture and processed food items under scientifically controlled conditions including refrigeration and other facilities necessary for the preservation of such produce;
- (c) “infrastructure facility” shall have the meaning assigned to it in the Explanation to section 80-IA(4) of the Income-tax Act, 1961;
- (d) “specified business” means any one or more of the following businesses:—
- (i) setting up and operating a cold chain facility;
- (ii) setting up and operating a warehousing facility for storage of agricultural produce;
- (iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;
- (iv) building and operating, anywhere in India, a hotel of two star or above category as classified by the Central Government;
- (v) building and operating, anywhere in India, a hospital with at least 100 beds for patients;
- (vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government as per the guidelines notified by the Board;
- (vii) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government as per the guidelines notified by the Board;
- (viii) production of fertilizer in India;
- (ix) setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962;
- (x) bee-keeping and production of honey and beeswax;
- (xi) setting up and operating a warehousing facility for storage of sugar;
- (xii) laying and operating a slurry pipeline for the transportation of iron ore;
- (xiii) setting up and operating a semiconductor wafer fabrication manufacturing unit as per the guidelines notified by the Board;
- (xiv) developing, or maintaining and operating, or developing, maintaining and operating, a new infrastructure facility;
- (e) any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if—
- (i) such machinery or plant was not, at any time before the date of the installation by the assessee, used in India;
- (ii) such machinery or plant is imported into India; and
- (iii) no deduction of depreciation for such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period before the date of installation of the machinery or plant by the assessee;
- (f) if any machinery or plant or its part previously used for any purpose is transferred to the specified business and its total value does not exceed 20% of the total value of the machinery or plant used in such business, then the conditions specified in sub-section (3)(b) shall be deemed to be complied with;
- (g) any expenditure of capital nature shall not include any expenditure––
- (i) for which the payment or aggregate of payments made to a person in a day, is not through specified banking or online mode, exceeds ten thousand rupees; or
- (ii) incurred on the acquisition of any land or goodwill or financial instrument.
FAQs on Section 46 of Income Tax Act 2025
1. What is Section 46 of the Income Tax Act, 2025?
Section 46 allows a 100% deduction of capital expenditure incurred for specified businesses, provided certain conditions are met.
2. From which date is Section 46 applicable?
It is applicable w.e.f. 1st April, 2026.
3. Who can claim deduction under Section 46?
Any assessee carrying on a specified business who incurs capital expenditure wholly and exclusively for such business.
4. Is the deduction under Section 46 mandatory or optional?
It is optional. The assessee “at his option” may claim it.
5. Is revenue expenditure covered under Section 46?
No. Only capital expenditure is covered.
6. Can capital expenditure incurred before the commencement of the business be claimed?
Yes, if such expenditure is capitalised in the books as on the date of commencement, it is allowed in the year of commencement of operations (Section 46(2)).
7. Can capital expenditure be claimed in more than one tax year?
No. Deduction is allowed only in the tax year in which expenditure is incurred (or when operations commence, if incurred earlier).
8. What are the basic conditions a specified business must fulfill?
- Not formed by reconstruction or splitting up of an existing business
- No transfer of previously used plant/machinery, subject to exceptions
- Additional conditions if it relates to certain infrastructure/pipeline businesses
9. Can used plant and machinery be used in a specified business?
Generally, no. However, allowed if:
- It was used outside India and meets conditions (Section 46(11)(e)), or
- Value of used machinery does not exceed 20% of total (Section 46(11)(f)).
10. What businesses qualify as specified business?
Includes:
- Cold chain facility
- Warehousing for agri-produce/sugar
- Cross-country pipelines
- Hotels (2-star and above)
- Hospitals (100+ beds)
- Affordable/slum housing
- Fertilizer plant
- Container depot/station
- Bee-keeping
- Semiconductor manufacturing
- Infrastructure facilities
- Slurry pipelines
11. Is there a date restriction for commencement of specified businesses?
Yes. Each type of business must have commenced operations on or after specific dates as listed in Section 46(6) table.
12. Are only companies eligible for specified businesses?
Mostly yes, particularly for pipeline and infrastructure businesses, which must be owned by Indian companies, boards, or statutory authorities.
13. Can deduction be claimed under any other provision also?
No. If claimed under Section 46(1), no deduction allowed under Section 144, Chapter VIII-C, or any other section (46(4), 46(5)).
14. Is expenditure on land or goodwill allowed?
No. Such expenditure is excluded from capital expenditure (Section 46(11)(g)).
15. What if payment is not made via specified banking modes?
If any capital payment exceeds ₹10,000 in cash, it is not allowable (Section 46(11)(g)).
16. For how long must the asset be used for the specified business?
For a minimum of 8 years from the year of acquisition/construction (Section 46(9)(a)).
17. What happens if the asset is used for non-specified purposes within 8 years?
Deduction is reversed (net of depreciation) and taxed as business income (Section 46(9)(b)).
18. Is reversal of deduction applicable for sick companies?
No. If the company becomes sick under the 1985 Act, reversal does not apply (Section 46(10)).
19. What if a 2-star hotel is owned but operated by someone else?
Assessee is still deemed to carry on the specified business (Section 46(7)).
20. What happens if a person transfers a capital asset within 8 years?
Unless covered under exceptions, it could trigger income under Section 26(2)(k) or result in reversal under Section 46(9).
21. Can associated persons use the pipeline capacity in a gas network business?
Yes, but at least a certain proportion must be available for non-associated persons on a common carrier basis.
22. What is an “associated person”?
Defined in Section 46(11)(a). Includes persons with:
- ≥26% voting power
- Control over management
- Right to appoint majority of board
- Guarantee of ≥10% borrowings
23. What is meant by “cold chain facility”?
A scientifically controlled chain for storage/transportation of perishable goods (Section 46(11)(b)).
24. What is “infrastructure facility”?
As defined under Explanation to Section 80-IA(4) of the old Income-tax Act, 1961 (Section 46(11)(c)).
25. Are there any cross-references to other provisions?
Yes. Sections 122(6) and 138(18) & (23) are applicable to this section for handling assets (Section 46(8)).
In summary, Section 46 is a focused provision intended to boost capital-intensive sectors and nation-building activities, while ensuring proper checks against misuse through robust conditions and anti-abuse rules.
