• No other deduction allowed: If you claim deduction under Section 35AD of Income Tax Act, you will not be allowed any other deduction under Chapter VIA of the Income Tax Act, 1961, which includes deductions for setting up a new business, research and development, and infrastructure development.
• Loss cannot be set off against other income: If you incur a loss from the specified business, you will not be able to set it off against any other income, except income from another specified business.
• Asset must be used for specified business for 8 years: The asset for which you claim deduction under Section 35AD of Income Tax Act must be used only for the specified business for a period of 8 years beginning with the previous year in which the asset is acquired or constructed. If the asset is used for any other purpose during this period, the amount of deduction claimed will be treated as income of assesses in the previous year in which the asset is used for other purpose.

Example

• No deduction under other sections: If you claim a deduction under Section 35AD, you will not be eligible for any other deduction for the same expenditure under any other section of the Income Tax Act.
• For example, if you claim a deduction under Section 35AD of Income Tax Act for the expenditure incurred on setting up a cold chain facility, you will not be eligible for any depreciation deduction on the same asset under Section 32 of Income Tax Act
• Asset must be used for specified business only: The asset for which you claim a deduction under Section 35AD of Income Tax Act must be used only for the specified business for a period of eight years beginning with the previous year in which the asset is acquired or constructed. If the asset is used for any other purpose during this period, you will be liable to pay tax on the amount of deduction claimed under Section 35AD of Income Tax Act.
• Loss from specified business cannot be set off against other income under Income Tax Act: Loss from a specified business cannot be set off against any other income except income from another specified business. For example, if you run a cold chain facility and incur a loss, you cannot set off this loss against your income from other businesses, such as your salary income.

Case study

• Can the deduction be claimed in subsequent years under Income Tax Act?

No, the deduction under Section 35AD of Income Tax Actcan only be claimed in the previous year in which the expenditure is incurred.

• What happens if the business is discontinued under Income Tax Act?

If the business is discontinued, the deduction under Section 35AD of Income Tax Act will be reversed and added to the income of the assesses in the year of discontinuance.

• What happens if the asset is sold or demolished under Income Tax Act?

If the asset is sold or demolished, the amount received or receivable on account of the sale or demolition will be treated as income of the assessed and chargeable to income tax under the head “Profits and gains of business or profession”.

• Can the deduction be claimed in conjunction with other deductions under Income Tax Act?

Yes, the deduction under Section 35AD of Income Tax Act can be claimed in conjunction with other deductions that are available under the Income Tax Act, 1961.

• What are the documentation requirements for claiming the deduction under Income Tax Act?

The following documents are required to claim the deduction under Section 35AD of Income Tax Act:

* Proof of expenditure incurred.

* Books of account of the assesses.

* Certificate from a chartered accountant verifying the expenditure insure

Section 35DDofIncome Tax Act

The deduction is available to an Indian company that is the amalgamated company or the demerged company. The expenditure must be incurred after the 1st day of April, 1999.

The following are some of the expenditures that is eligible for deduction under Section 35DD of Income Tax Act

• Legal fees and expenses incurred in connection with the amalgamation or demerger.
• Accounting fees and expenses incurred in connection with the amalgamation or demerger.
• Valuation fees and expenses incurred in connection with the amalgamation or demerger.
• Stamp duty and registration fees incurred in connection with the amalgamation or demerger.
• Other incidental expenses incurred in connection with the amalgamation or demerger.

Example

• Tamil Nadu: In Tamil Nadu, the government has provided a subsidy of 25% of the capital expenditure incurred by companies for setting up a cold chain facility for storage of perishable agricultural produce.
• Maharashtra: The state government of Maharashtra has provided a capital subsidy of 20% for setting up a warehousing facility for storage of agricultural produce.
• Gujarat: The Gujarat government has provided a capital subsidy of 15% for setting up a facility for the generation and distribution of electricity from renewable sources.
• Karnataka: The Karnataka government has provided a capital subsidy of 10% for setting up a facility for the treatment and disposal of hazardous waste.

Case study

• What is Section 35DD of Income Tax Act

Section 35DD of the Income Tax Act, 1961 allows a deduction of 50% of the capital expenditure incurred for setting up and operating a new manufacturing unit in a notified backward area in India.

• What are the notified backward areas under Income Tax Act?

The notified backward areas are:

* The North Eastern States.

* Sikkim.

* Himachal Pradesh.

* Uttar Pradesh

* Jammu and Kashmir.

* Andaman and Nicobar Islands.

* Lakshadweep.

* Dadra and Nagar Haveli.

* Daman and Diu.

* All other areas as notified by the Central Government.

• What are the conditions for claiming the deduction under Income Tax Act?

The following conditions must be met in order to claim the deduction under Section 35DD of Income Tax Act:

* The manufacturing unit must be set up in a notified backward area.

* The manufacturing unit must be new, i.e., it must not have been used for any manufacturing activity before.

* The capital expenditure must be incurred during the previous year in which the manufacturing unit is set up.

• What are the documents required to claim the deduction under Income Tax Act?

The following documents are required to claim the deduction under Section 35DD of Income Tax Act:

* Proof of expenditure incurred.

* Certificate from the concerned State Government or Union Territory Administration certifying that the manufacturing unit is located in a notified backward area.

* Certificate from a chartered accountant verifying the expenditure incurred.

Here are some additional FAQs about Section 35DD of Income Tax Act with states of India:

• Which states in India are considered backward areas under Income Tax Act?

All the states mentioned in Section 35DD of Income Tax Act are considered backward areas.

• What is the maximum amount of deduction that can be claimed under Section 35DD of Income Tax Act?

The maximum amount of deduction that can be claimed under Section 35DD of Income Tax Act is 50% of the capital expenditure incurred.

• Can the deduction be claimed in subsequent years under Income Tax Act?

Yes, the deduction under Section 35DD of Income Tax Act can be claimed in subsequent years, subject to the condition that the manufacturing unit continues to be located in a notified backward area.

• What happens if the manufacturing unit is discontinued under Income Tax Act?

If the manufacturing unit is discontinued, the deduction under Section 35DD of Income Tax Act will be reversed and added to the income of the assesses in the year of discontinuance.

• What happens if the asset is sold or demolished under Income Tax Act?

If the asset is sold or demolished, the amount received or receivable on account of the sale or demolition will be treated as income of the assesses and chargeable to income tax under the head “Profits and gains of business or profession