Section 35A of Income Tax Act 1961: Expenditure on Patent Rights or Copyrights
Section 35A was a special amortisation provision for specified capital expenditure incurred on acquiring patent rights or copyrights for business use. Its practical scope is historical because the provision applies only where the qualifying expenditure was incurred after 28 February 1966 but before 1 April 1998.
Meaning and scope of Section 35A
Section 35A of the Income-tax Act, 1961 dealt with capital expenditure on the acquisition of patent rights or copyrights used for the purposes of a business. The statutory time condition is important: the expenditure must have been incurred after 28 February 1966 and before 1 April 1998.
Accordingly, Section 35A should not be read as a general deduction for a new acquisition of patents or copyrights today. It is a legacy provision whose continuing relevance arises principally in older tax matters to which the 1961 Act continues to apply under the applicable savings rules.
How the Section 35A deduction worked
Sub-section (1): amortisation over relevant previous years
For qualifying capital expenditure, the deduction was allowed for each of the "relevant previous years" in an amount equal to the "appropriate fraction" of the expenditure.
Relevant previous years: ordinarily, the fourteen previous years beginning with the year in which the expenditure was incurred. If the expenditure was incurred before the business commenced, the period began with the previous year in which the business commenced.
If the rights had already become effective before the year in which the assessee acquired them, the fourteen-year period was reduced by the number of complete years already elapsed. Where fourteen years had already elapsed, the reference was effectively reduced to one year.
Appropriate fraction: one divided by the number of relevant previous years.
What happened when the rights ended or were sold?
| Provision | Effect under Section 35A |
|---|---|
| Sub-section (2) | If the rights ended without revival, or were sold and the relevant capital sale proceeds were not less than the unallowed acquisition cost, no further deduction under sub-section (1) was allowed for that year or later years. |
| Sub-section (3) | If the rights ended without revival or were sold in their entirety and the relevant capital sale proceeds were less than the unallowed acquisition cost, the remaining unallowed amount, reduced by sale proceeds where applicable, was deductible in that previous year. |
| Sub-section (4) | If relevant capital sale proceeds exceeded the unallowed acquisition cost, the specified excess, limited by the amount previously allowed, was chargeable as business income for the previous year of sale. The rule could apply even where the business no longer existed in that year. |
| Sub-section (5) | For a partial sale where sub-section (4) did not apply, the remaining deduction was recomputed after reducing the relevant capital sale proceeds and spreading the balance over the unexpired relevant previous years. |
Amalgamation and demerger
Sub-section (6): amalgamation
Where an amalgamating company transferred the rights to an amalgamated company that was an Indian company, sub-sections (3) and (4) did not apply to the amalgamating company. Section 35A then applied, as far as possible, to the amalgamated company as it would have applied to the amalgamating company if the transfer had not taken place.
Sub-section (7): demerger
A similar continuity rule applied where a demerged company transferred the rights to a resulting company that was an Indian company. Sub-sections (3) and (4) did not apply to the demerged company, and the provision continued to operate for the resulting company, as far as applicable.
Current tax-law position from 1 April 2026
The Income-tax Act, 2025 came into force on 1 April 2026. It repealed the Income-tax Act, 1961, subject to the detailed repeal and savings rules in Section 536 of the 2025 Act. Therefore, an older proceeding or tax-year issue may still have to be determined under the 1961 Act where the savings provisions so require.
For current depreciation law, the 2025 Act contains the depreciation provision in Section 33. It expressly covers intangible assets such as know-how, patents, copyrights, trademarks, licences, franchises and similar business or commercial rights, subject to the statutory conditions and applicable rules.
For historical context under the 1961 Act, Section 32 likewise covered patents, copyrights and specified other intangible assets acquired on or after 1 April 1998. This explains the 1 April 1998 cutoff built into Section 35A.
Official resources
For authoritative verification and current amendments, refer to the official Income Tax Department resources:
- Income Tax Department - Section 35A of the Income-tax Act, 1961
- Income Tax Department - Income-tax Act, 2025 and transition resources
- Income-tax Act, 2025 as amended by Finance Act, 2026
Editorial note: This page explains a statutory provision in general terms. For a particular assessment, transaction or pending proceeding, the applicable tax year, acquisition date, nature of rights and repeal-and-savings rules should be checked.