# Section 35AD: Specified Business Deduction
Section 35AD allows a 100% deduction on capital expenditure incurred for setting up certain 'specified businesses' that the Government wishes to incentivise. Land, goodwill, and financial instruments are excluded.
## Specified Businesses (Mnemonic: A-H-I-W-I-H)
### Group 1 — Agriculture-linked
- Setting up and operating a cold chain facility
- Setting up and operating a warehousing facility for agricultural produce and sugar (edible oil NOT covered)
- Production of fertiliser in India
### Group 2 — House / Hotel / Hospital
- Developing & building a housing project under a Slum Redevelopment Scheme or Affordable Housing Scheme
- Building & operating a hotel of 2-star or above category
- Building & operating a hospital with minimum 100 beds
### Group 3 — Infra & specialised
- Iron — Laying and operating a slurry pipeline for iron ore transportation
- Wafer — Setting up & operating a semi-conductor wafer fabrication unit
- Infrastructure — Developing, maintaining & operating a new infrastructure facility
- Honey — Bee-keeping and production of honey & wax
## Conditions to Qualify
1. New business — Must not be formed by splitting up or reconstructing an existing business.
2. New Plant & Machinery — Old P&M is restricted. Exceptions:
- Up to 20% of total P&M may be old.
- Imported second-hand P&M is allowed if depreciation has not been previously claimed in India.
3. No depreciation is allowed on assets on which Sec 35AD deduction has been taken (no double benefit).
4. No simultaneous claim under Sec 10AA or under Sec 80IA to 80RRB.
5. Pre-commencement capital expenditure that is capitalised in books in the year of commencement is allowed in full as deduction u/s 35AD in the year of commencement.
6. Mode of payment: Sec 40A(3) applies — any capital expenditure exceeding Rs. 10,000 to a single person in a single day must be by A/c payee cheque/DD/ECS/electronic mode.
## Loss Treatment
- Unabsorbed loss of specified business can be carried forward indefinitely.
- Loss of specified business can be set off only against income of another specified business — irrespective of whether that other specified business has itself claimed Sec 35AD or not.
## What is 'Infrastructure Facility'?
Includes: road (including toll road), bridge, rail system, highway project, water supply project, water treatment project, airport, inland waterways, etc.
## Misuse Provisions: Asset Sold / Used Outside Specified Business
The asset must be exclusively used for the specified business for 8 years from the date of acquisition.
### (A) If asset is used for non-specified business before expiry of 8 years:
```
Amount of deduction claimed earlier xxx
(-) Depreciation that would have been allowable (xxx)
if Sec 35AD had not been claimed
Net amount → added back to PGBP income xxx
```
Also, this net amount becomes the actual cost for the non-specified business (i.e., depreciation going forward starts on this base).
### (B) If asset is sold before expiry of 8 years:
The whole sale consideration is taxable as PGBP income — even if it exceeds the deduction originally claimed.
### (C) If used for non-specified business after expiry of 8 years:
No PGBP income arises. Actual cost = NIL for future depreciation.
### (D) If sold after expiry of 8 years:
Sale proceeds taxable as PGBP income.