Section 46 Income Tax Act 2025: Who Can Claim Capital Expenditure Deduction?
Section 46 of the Income-tax Act, 2025 allows an eligible taxpayer to claim a deduction for qualifying capital expenditure incurred wholly and exclusively for a specified business. The deduction is elective and is subject to detailed conditions, exclusions and restrictions against double benefits.
What deduction is available under Section 46?
Under Section 46(1), an assessee may opt to deduct the whole of eligible capital expenditure incurred wholly and exclusively for a specified business in the tax year in which it is incurred. Under Section 46(2), eligible pre-commencement capital expenditure, capitalised in the books as on commencement, may be deducted in the tax year the business commences operations.
This is a special deduction for qualifying businesses, not a general deduction for every capital purchase. An expenditure deducted under Section 46 cannot be deducted again under another provision or in another tax year. Section 46(4) also restricts deductions under Chapter VIII-C for the same specified business.
Which businesses are specified businesses?
Section 46(11)(d) identifies the following categories, subject to their individual statutory commencement dates, approvals and other requirements:
- Setting up and operating a cold chain facility.
- Setting up and operating a warehouse for agricultural produce.
- Laying and operating qualifying cross-country natural gas, crude oil or petroleum oil pipeline networks.
- Building and operating a hotel classified as two-star or above in India.
- Building and operating a hospital with at least 100 beds in India.
- Developing and building notified slum redevelopment or rehabilitation housing projects.
- Developing and building notified affordable housing projects.
- Producing fertiliser in India.
- Setting up and operating approved or notified inland container depots or container freight stations.
- Bee-keeping and producing honey and beeswax.
- Setting up and operating warehouses for sugar.
- Laying and operating slurry pipelines to transport iron ore.
- Setting up and operating notified semiconductor wafer fabrication manufacturing units.
- Developing, operating or maintaining a qualifying new infrastructure facility.
Important: Inclusion in this list alone does not establish entitlement. Section 46(6) sets different commencement-date requirements, and particular projects may require prescribed approvals or notification.
What are the principal eligibility conditions?
- The specified business must not be formed by splitting up or reconstructing an existing business.
- It must not ordinarily be formed by transferring previously used plant or machinery, subject to statutory exceptions including the 20% tolerance in Section 46(11)(f).
- Qualifying pipeline businesses must meet applicable ownership, regulatory approval, common-carrier capacity and other prescribed conditions.
- Qualifying new infrastructure facilities must satisfy applicable ownership and agreement requirements under Section 46(3)(d).
- Project-specific commencement dates, notifications and prescribed requirements must be met.
Which capital expenditure cannot be deducted?
Section 46(11)(g) excludes expenditure on acquiring land, goodwill or financial instruments. It also excludes capital expenditure where a payment or aggregate payments to a person in a day exceed Rs. 10,000 otherwise than through specified banking or online modes. The statutory language and applicable payment-mode rules should be checked for each transaction.
Capital expenditure on eligible plant, buildings or facilities may qualify only to the extent that it satisfies Section 46 and is not excluded. A deduction cannot be claimed twice, and the ordinary depreciation treatment must be considered in conjunction with the special deduction.
What is the eight-year asset-use condition?
Under Section 46(9), an asset in respect of which the deduction has been claimed and allowed must be used only for the specified business for eight years beginning with the tax year in which it is acquired or constructed.
If the asset is used for a non-specified purpose during this period, the Act may deem the earlier deduction, reduced by notional depreciation calculated under Section 33, to be taxable business income in the year of such use, subject to the statutory exceptions and the interaction with Section 26(2)(k).
Relevant statutory definitions under Section 46(11)
Practical example: qualifying hospital
Assume an eligible taxpayer establishes a new hospital with at least 100 beds, meets the statutory commencement and other conditions, and incurs Rs. 4 crore on qualifying capital assets and Rs. 1 crore to acquire land. If the qualifying Rs. 4 crore is wholly and exclusively incurred for the specified business, it may be deductible under Section 46, whereas the Rs. 1 crore land acquisition cost is excluded. This illustration assumes all other conditions are fulfilled and does not address other disallowances.
Frequently asked questions
Is the deduction 100% of all project costs?
No. It is for the whole of qualifying capital expenditure, but exclusions such as land, goodwill, financial instruments and certain non-compliant payments apply.
Can pre-opening expenditure qualify?
Yes, subject to Section 46(2), if the expenditure qualifies and is capitalised in the books as on the commencement date.
Can a taxpayer claim both Section 46 deduction and depreciation on the same expenditure?
The same expenditure cannot be deducted again under another provision. The special deduction and depreciation provisions must be applied without double deduction.
What happens if a deducted asset is diverted to another business?
A diversion within the eight-year restricted period can trigger deemed business income under Section 46(9), subject to the statutory qualifications.
Official legislation and further reading
Updated: 10 November 2026. This article provides general legal information and should be read with the complete statutory provision, notifications and rules applicable to the tax year.