Section 35AB of Income Tax Act 1961: Expenditure on Know-How
Section 35AB was a special provision for amortising certain lump-sum expenditure incurred to acquire know-how for business. Its operative deduction was restricted to payments connected with assessment years commencing on or before 1 April 1998, so the section is now mainly relevant to historical matters and proceedings governed by the Income-tax Act, 1961.
What does "know-how" mean?
For Section 35AB, "know-how" means industrial information or a technique likely to assist in the manufacture or processing of goods, or in the working of a mine, oil well or another source of mineral deposits. The definition also extends to searching for, discovering or testing deposits and winning access to them.
The modern Income-tax Act, 2025 uses substantially the same concept of know-how in Section 33(12)(b) while treating know-how as an intangible asset for depreciation purposes.
Scope and historical applicability of Section 35AB
Section 35AB(1) applied where an assessee paid lump-sum consideration to acquire know-how for use in business and the payment fell in a previous year relevant to an assessment year commencing on or before 1 April 1998. This date restriction is essential: Section 35AB is not a general deduction provision for modern acquisitions of know-how.
How the deduction worked under Section 35AB
| Situation | Deduction in year of payment | Balance deduction |
|---|---|---|
| Ordinary qualifying lump-sum know-how expenditure under Section 35AB(1) | One-sixth of the amount paid | Equal instalments over the next five previous years |
| Know-how developed in a laboratory, university or institution referred to in former Section 32A(2B) | One-third of the amount paid | Equal instalments over the next two previous years |
Section 35AB in substance
Sub-section (1): Subject to sub-section (2), qualifying lump-sum consideration paid for acquiring know-how for business use was deductible by allowing one-sixth in the relevant previous year and the balance in equal instalments over the five immediately succeeding previous years. The provision was confined to the statutory cut-off described above.
Sub-section (2): Where the qualifying know-how was developed in the specified laboratory, university or institution, one-third was deductible in the year of payment and the balance in equal instalments over the next two previous years.
Sub-section (3): In a qualifying amalgamation or demerger, the amalgamated or resulting company could continue the deduction for the residual period to the same extent as it would have been available to the amalgamating or demerged company.
Treatment on amalgamation or demerger
If an undertaking was transferred under a scheme of amalgamation or demerger while the amalgamating or demerged company was entitled to a Section 35AB deduction, sub-section (3) preserved the remaining deduction for the amalgamated or resulting company for the residual period, subject to the terms of the section.
Current treatment of know-how under the Income-tax Act, 2025
For tax years beginning on or after 1 April 2026, the Income-tax Act, 2025 is the current statute. Section 33(1)(b) expressly includes know-how, patents, copyrights, trademarks, licences, franchises and similar business or commercial rights, other than goodwill, among intangible assets eligible for depreciation when the statutory conditions are satisfied.
Section 33(12)(b) of the 2025 Act defines know-how as industrial information or technique likely to assist in manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits, including specified exploration-related activities.
Official Income Tax resources
For the controlling statutory text and transition guidance, refer to the Income Tax Department Acts page, the Income-tax Act, 2025 resources, and the official transition FAQs.
Related provisions
For surrounding provisions of the 1961 Act, see Section 35 - expenditure on scientific research, Section 35A - acquisition of patent rights or copyrights, Section 35ABB - telecommunication licence expenditure, and Section 35AD - specified business expenditure.
This page explains the statutory provision for general information. For a particular assessment, proceeding or transaction, apply the law governing the relevant tax year and the applicable transition provisions.