# Deduction for Specified Businesses [Section 35AD]
Section 35AD allows a 100% deduction of capital expenditure for certain notified specified businesses, as an investment-linked incentive (replacing area-based profit-linked deductions).
## The 14 specified businesses
1. Cold chain facilities for specified products.
2. Warehousing facilities for agricultural produce.
3. Cross-country natural gas / crude oil / petroleum pipeline network incl. storage (companies only).
4. Building & operating hotels rated two-star or higher, anywhere in India.
5. Hospitals with at least 100 beds, anywhere in India.
6. Housing under notified slum redevelopment/rehabilitation schemes.
7. Housing under notified affordable housing schemes.
8. Producing fertilizers in India.
9. Inland container depot / container freight station (approved under Customs Act, 1962).
10. Bee-keeping and production of honey & beeswax.
11. Warehousing facilities for sugar.
12. Slurry pipeline for transporting iron ore.
13. Semiconductor wafer fabrication unit (subject to Board notification).
14. Developing, maintaining & operating a new infrastructure facility.
## Amount of deduction
- 100% of capital expenditure incurred wholly and exclusively for the specified business.
- Pre-commencement capital expenditure is deductible in the year of commencement, provided it is capitalised in the books on the commencement date.
- No deduction for cost of land, goodwill, or financial instruments.
- Payments exceeding ₹10,000 to a single person in a day must be through banking channels (except bearer cheque/bearer draft) to qualify.
- For individuals, HUF, AOP, BOI, AJP — deduction available only under the optional (old) regime.
- Companies opting for 115BAA / 115BAB are not eligible.
- Once 35AD is claimed, no deduction under Chapter VI-A Heading 'C' (deductions for certain incomes) and no Section 10AA.
## Conditions for claiming the deduction
- Business must not be formed by splitting up / reconstructing an existing business.
- Must not use second-hand plant/machinery previously used for other purposes — except up to 20% of total machinery value.
- 'Second-hand machinery' does NOT include machinery that: was not used in India before installation by the assessee; was imported from abroad; and on which no depreciation was claimed by any other assessee in any A.Y.
## Other conditions
1. Audit: Accounts must be audited by a Chartered Accountant and the report furnished in the prescribed form, signed and verified.
2. 8-year usage rule:
- 35AD(7A): The asset must be used exclusively for the specified business for at least 8 years.
- 35AD(7B): If put to other use within 8 years → (deduction claimed earlier − notional depreciation u/s 32) is taxed as business income of that year, and the same value is added to the block.
> Deemed income = Deduction claimed earlier − Notional Depreciation
3. Sec. 28(vii): If the 35AD asset is demolished, destroyed, discarded or transferred, any amount received/receivable is taxed as business income.
## Loss set-off [Section 73A]
Loss of a specified business (claiming 35AD) can be set off only against profits of another specified business — whether or not that other business itself claims 35AD. (Carry forward is indefinite.)
## Key definitions
- Cold Chain Facility: chain of facilities for storage/transport of agricultural & forest produce, meat & meat products, poultry, marine & dairy products, horticulture, floriculture, apiculture and processed food, under scientifically controlled (incl. refrigeration) conditions.
- Infrastructure Facility: roads (incl. toll roads), bridges, rail systems; highway projects incl. integral housing; water supply/treatment, irrigation, sanitation & sewerage, solid waste management; ports, airports, inland waterways, inland ports, navigational sea channels.