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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Under section 46 of the Income-tax Act, 2025, a company incurs capital expenditure before commencing a specified business and capitalises it in its books as on the date of commencement of operations. In which tax year is the deduction allowed?

The deduction is allowed in the tax year in which the specified business commences operations, provided the pre-commencement capital expenditure is capitalised in the books as on the commencement date. It is not spread over several years or deferred until profits arise.

  1. AThe tax year in which the expenditure was actually incurred, even if before commencement
  2. BThe tax year in which the business commences operationsCorrect
  3. CSpread equally over the first five tax years after commencement
  4. DThe tax year in which the first profit is earned

Explanation

Section 46(2) provides that pre-commencement capital expenditure, if capitalised in the books on the date of commencement of operations, is allowed in the tax year in which the business commences. It is not spread over years and is not linked to profit.

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