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    Section 35AD investment-linked deduction (35AD)

    Section 35AD lets a specified business deduct 100% of its capital expenditure (and revenue expenditure) in the year incurred, instead of depreciating it, a front-loaded write-off. It applies to a defined list of specified businesses, such as cold-chain facilities, agricultural warehousing, gas and oil pipelines, two-star-plus hotels, hospitals of 100 beds or more, affordable housing and semiconductor fabrication. But it comes with real strings: no depreciation on the same assets, losses ring-fenced under Section 73A (set off only against specified-business income), MAT exposure, and forfeiture if you opt into the 22% concessional regime (115BAA). Most categories are now closed to new entrants, so it is largely legacy.

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    What this relief is, in plain English

    35AD is a timing incentive: instead of writing off a big capital asset slowly through depreciation, a specified business writes off 100% of the cost in the year it spends, which front-loads the tax benefit. The trade-offs are significant. You cannot also claim depreciation on those assets (the written-down value is nil). Any loss the deduction creates is ring-fenced, you can only set it off against income from the same specified business, not your other income. Minimum alternate tax can still bite because 35AD reduces normal income but not book profit. And opting into the 22% company regime (115BAA) cancels 35AD entirely. With most of the specified-business categories closed to new entrants, this is now mainly a legacy provision, so model the net present value carefully before relying on it.

    How it works

    100% upfront, in lieu of depreciation

    A specified business deducts 100% of its qualifying capital expenditure (excluding land, goodwill and financial instruments) in the year it is incurred, plus revenue expenditure. Because the benefit is taken upfront, no depreciation under Section 32 is allowed on the same assets (their written-down value is nil). The business must be new (not formed by splitting or reconstruction, and using no more than 20% second-hand plant), and capital expenditure over Rs 10,000 must be non-cash.

    Ring-fenced losses (Section 73A)

    Because the 100% upfront write-off often creates a loss, Section 73A ring-fences it: a specified-business loss can be set off only against income from a specified business, not against your other income, though it carries forward indefinitely within that ring-fence. So the deduction does not shelter unrelated profits, which materially changes its value compared with ordinary depreciation.

    MAT, 115BAA and the legacy reality

    Minimum alternate tax (Section 115JB) can still apply, because 35AD reduces normal taxable income but not book profit, creating MAT exposure in the years the deduction is claimed. And opting into the 22% concessional regime (115BAA) forfeits 35AD entirely, irrevocably, so you model the net present value of 35AD-plus-higher-rate against 115BAA-without-35AD. With most specified-business categories closed to new entrants and no new sectors added recently, 35AD is largely a legacy provision now.

    Who qualifies

    Interactions with other reliefs

    Depreciation (Section 32)

    No depreciation on assets written off under 35AD (nil written-down value)

    Section 73A

    Specified-business losses are ring-fenced to specified-business income

    Section 115BAA

    Opting into the 22% regime forfeits 35AD irrevocably

    Common mistakes + audit triggers

    Worked example

    FreshChain Logistics, Ahmedabad - cold-chain facility operator (specified business) (2026-27)

    FreshChain incurs Rs 8 crore of qualifying capital expenditure on a new cold-chain facility (excluding land). It must decide between 35AD and the 22% regime.

    Calculation: Under Section 35AD it deducts the full Rs 8 crore upfront (in lieu of depreciation), which likely creates a large loss, but that loss is ring-fenced under Section 73A to its specified-business income only. It cannot also depreciate those assets. MAT may apply because book profit is unaffected. If instead it opts into the 22% regime (115BAA), it forfeits 35AD entirely. It models the net present value of 35AD-plus-normal-rate against 115BAA-without-35AD before committing, and checks the cold-chain category is still open to it.

    Statute reference: Income-tax Act 2025 (specified-business deduction) (Income-tax Act 1961 s.35AD) s.35AD (100% capex, specified business); s.73A (ring-fenced loss); s.115JB (MAT); forfeited under s.115BAA. Source / notes: Year-of-Act note: most specified-business categories are closed to new entrants (legacy); 115BAA forfeits 35AD.

    Frequently asked questions

    What does Section 35AD allow?+
    A 100% deduction of qualifying capital expenditure (and revenue expenditure) for a specified business in the year incurred, instead of claiming depreciation over time, a front-loaded write-off. It applies to a defined list including cold chains, warehousing, pipelines, two-star-plus hotels, 100-bed hospitals, affordable housing and semiconductor fabrication, though most categories are now closed to new entrants.
    What are the downsides of 35AD?+
    Several. You cannot also claim depreciation on those assets. Any loss the deduction creates is ring-fenced under Section 73A (set off only against specified-business income, not your other profits). Minimum alternate tax can still apply because book profit is unchanged. And opting into the 22% concessional regime (115BAA) forfeits 35AD entirely. So the upfront write-off is not as unambiguously good as it first looks.
    Can I claim 35AD and depreciation on the same asset?+
    No. The 100% deduction under 35AD is in lieu of depreciation, so once claimed, the asset's written-down value is nil and no further depreciation under Section 32 is allowed. The choice is front-loaded 35AD or ordinary depreciation over the asset's life, not both, which is part of the net-present-value comparison you should run.
    Is 35AD still worth considering?+
    Mainly for legacy or still-open specified businesses, and only after modelling. Most categories are closed to new entrants, the ring-fenced losses and MAT exposure reduce the value, and the 22% regime forfeits it. So while a 100% upfront write-off sounds attractive, you should compare the net present value against ordinary depreciation and the 115BAA route before relying on it.

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