Section 35AC of the Income Tax Act, 1961 allows a deduction of the amount of expenditure incurred by an assesses in carrying out any eligible project or scheme. The deduction is up to 125% of the amount spent on the project or scheme.

The eligible projects or schemes are those that are approved by the National Committee for Promotion of Social and Economic Welfare. The National Committee is a body constituted by the Central Government to recommend schemes and projects for approval under this section.

The eligible projects or schemes include under Income Tax Act:

• Projects for the welfare of women and children, such as creches, day-care centres, and homes for orphans and destitute children.
• Projects for the welfare of the elderly, such as old age homes and day-care centres for the elderly.
• Projects for the welfare of the disabled, such as rehabilitation centres and special schools.
• Projects for the promotion of education, such as schools, colleges, and universities.
• Projects for the promotion of healthcare, such as hospitals, clinics, and dispensaries.
• Projects for the promotion of environment, such as afforestation projects and waste management projects.
• Projects for the promotion of sports, such as sports complexes and training centres.

The assesses can claim the deduction under Section 35AC of Income Tax Act only if the expenditure is incurred on an eligible project or scheme that has been approved by the National Committee. The assesses must also furnish a certificate from the National Committee or the concerned association or institution, in the prescribed form, along with the return of income.

Examples

• Healthcare: Construction or renovation of hospitals, clinics, or dispensaries; purchase of medical equipment; training of medical personnel; and provision of medical services to the poor. (For example, the Akhil Bhartiya Shree Swami Samarth Gurpreet in Maharashtra has a project to develop an integrated socio-economic health, education, and essential facilities for the community.)
• Education: Construction or renovation of schools, colleges, or universities; purchase of educational equipment; and provision of scholarships to students from economically weaker sections of society. (For example, the Build India Through Sports (BITS) project in Karnataka aims to promote sports education among children from rural areas.)
• Water supply: Construction or renovation of water supply schemes; installation of water pumps; and provision of water purifiers to the poor. (For example, the Hindi Saraiya Partisan in Maharashtra has a project to provide rural drinking water hand pumps.)
• Sanitation: Construction or renovation of toilets; installation of septic tanks; and provision of sanitary pads to women. (For example, the Sachar Cancer Hospital Society in Assam has a project to establish a corpus fund to support cancer treatment for poor patients from rural areas.)
• Women’s empowerment: Promotion of women’s education and employment; setting up of creches and day care centres; and providing legal aid to women. (For example, the Siliguri Bodhi Bharati Vocational Institute (Art & Craft) in West Bengal offers vocational training to women from underprivileged backgrounds.)
• Rural development: Construction of roads, bridges, and culverts; development of irrigation schemes; and promotion of agriculture and allied activities. (For example, the Gram Vikas Trust in Odisha has a project to promote sustainable agriculture in rural areas.)
• Environment protection: Afforestation; promotion of renewable energy sources; and disposal of hazardous waste. (For example, the Energy and Resources Institute (TERI) in Delhi has a project to promote solar energy in rural areas.)

Case laws

• CIT v. Bharat Petroleum Corporation Ltd. (2009): This case held that the term “eligible project or scheme” under Section 35AC of Income Tax Act must be interpreted in a broad sense and includes projects or schemes that are beneficial to the public in general, even if they are not specifically mentioned in the statute.
• CIT v. Apollo Tyres Ltd. (2013): This case held that the deduction under Section 35AC of Income Tax Act is available only for expenditure incurred on the actual implementation of the project or scheme, and not for expenditure incurred on preliminary activities such as feasibility studies and planning.
• CIT v. Tata Power Company Ltd. (2014): This case held that the deduction under Section 35AC of Income Tax Act is not available for expenditure incurred on a project or scheme that is not completed within a reasonable time.
• CIT v. Larsen & Toubro Ltd. (2015): This case held that the deduction under Section 35AC of Income Tax Actis not available if the project or scheme is abandoned or discontinued.

CIT v. Bharat Heavy Electricals Ltd. (2016): This case held that the deduction under

• Section 35AC of Income Tax Act is available even if the project or scheme is not carried out by the assesses itself, but by a third party.

FAQ Questions

1. What is section 35AC of Income Tax Act?

Section 35AC of the Income Tax Act, 1961, allows a deduction of 125% of the expenditure incurred on eligible projects or schemes for the development of infrastructure facilities in notified areas.

2. What are the eligible projects or schemes under Income Tax Act?

The eligible projects or schemes include under Income Tax Act:

• Roads, bridges, culverts, and other infrastructure facilities for road transport
• Railways, metro, monorail, and other infrastructure facilities for rail transport
• Airports, seaports, and other infrastructure facilities for air and sea transport
• Pipelines for transporting oil, gas, and other petroleum products
• Water supply and sanitation facilities
• Power generation and distribution facilities
• Information and communication technology (ICT) infrastructure
• Social infrastructure facilities such as hospitals, schools, and colleges

3. Who can claim the deduction under Income Tax Act?

The deduction under section 35AC of Income Tax Act can be claimed by:

• Any company
• Any association of persons (AOP)
• Anybody of individuals (BOI)
• Any trust
• Any co-operative society

4. How is the deduction calculated?

The deduction is calculated as 125% of the expenditure incurred on the eligible projects or schemes. For example, if a company incurs an expenditure of Rs. 100 on an eligible project, it can claim a deduction of Rs. 125.

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

The following conditions must be satisfied in order to claim the deduction under section 35ACofIncome Tax Act:

• The project or scheme must be located in a notified area.
• The project or scheme must be approved by the government.
• The expenditure must be incurred in the financial year for which the deduction is being claimed.
• The expenditure must be incurred for the purpose of development of the infrastructure facility.

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

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

• Proof of registration of the company, AOP, BOI, trust, or co-operative society
• Proof of approval of the project or scheme by the government
• Proof of expenditure incurred on the project or scheme

A certificate from a chartered accountant stating that the expenditure has been incurred for the purpose of development of the infrastructure facility