Section 35ABB: Deduction for Telecom Licence Expenditure
An explanatory guide to amortising telecom operating licence costs, treatment on transfer, corporate reorganisations and the corresponding law from 1 April 2026.
Overview and conditions
Section 35ABB provides a specific deduction for capital expenditure actually paid to acquire a licence or right to operate telecommunication services. Unlike ordinary revenue expenses, the qualifying fee is generally deducted in equal instalments over the applicable licence period. The original statutory rule and its subsection-by-subsection treatment are explained below.
Illustration: If an eligible licence fee of Rs. 10 crore is paid and the relevant period consists of five previous years, the annual deduction is ordinarily Rs. 2 crore, subject to the law and facts of the case.
35ABB(1): Eligible capital expenditure
Capital expenditure actually paid to obtain a licence or right to operate telecommunication services qualifies for amortisation over the relevant previous years. The provision applies whether payment is made before commencement of the telecom business or subsequently.
Explanation to 35ABB(1): Relevant previous years
If the fee is paid before business commencement, the deduction begins in the previous year in which business commences. Otherwise it begins in the year of actual payment. The remaining years extend through the period for which the licence remains in force.
Explanation: Appropriate fraction and actual payment
The appropriate fraction is one divided by the total number of relevant previous years. Actual payment is required, regardless of when the liability was recorded under the assessee's accounting method.
35ABB(2): Transfer proceeds below unallowed expenditure
If the licence is transferred and capital proceeds are less than expenditure still unallowed, the difference is deductible in the transfer year, subject to the statutory conditions.
35ABB(3): Recovery on transfer
Where capital transfer proceeds exceed the unallowed balance, the excess, limited to previously allowed expenditure, is taxable as business profits. The rule can apply even if the business has ceased.
35ABB(4): No further deduction in specified transfers
Where proceeds from transfer of the whole or part of the licence equal or exceed the unallowed expenditure, no deduction under subsection (1) is available for the transfer year or subsequent years.
35ABB(5): Partial transfer
For a partial transfer to which subsection (3) does not apply, subtract capital transfer proceeds from the unallowed balance and divide the remainder by the number of relevant previous years unexpired at the beginning of the transfer year.
35ABB(6): Amalgamation
On transfer of the licence under a qualifying amalgamation to an Indian amalgamated company, subsections (2), (3) and (4) do not apply to the amalgamating company; the successor generally continues the deduction treatment.
35ABB(7): Demerger
A corresponding continuity rule applies when the licence passes under a qualifying demerger to an Indian resulting company.
35ABB(8): No double deduction for depreciation
If a deduction under subsection (1) is claimed and allowed, depreciation under section 32(1) cannot also be claimed on the same expenditure for that or a subsequent previous year.
Income-tax Act, 2025: Section 52
Section 52(1), Table serial number 4, addresses capital expenditure actually paid for acquiring the right to operate telecommunication services. It generally spreads the deduction in equal instalments from the later of commencement of the telecom business or actual payment, through the tax year in which the licence expires. Section 52 also contains rules for transfers, amalgamations, demergers and prevention of duplicate depreciation deductions. Review the 2025 Act and transitional provisions for the relevant tax year rather than automatically applying old section numbering.
Judicial interpretation
The Supreme Court considered the character of licence fee payments under Section 35ABB in Commissioner of Income Tax v. Bharti Hexacom Ltd. (judgment dated 16 October 2023), including the treatment of variable licence fees under the telecom policy. Classification depends on the nature of the payment and the governing licence arrangements.
Official legal references
Income Tax Department: Section 35ABB text; Income Tax Department: deductions overview; Supreme Court judgment dated 16 October 2023; Income Tax Department e-filing portal. For the new Act, consult the enacted Income-tax Act, 2025 through the official India Code portal.
Frequently asked questions
What is Section 35ABB?
It provides for amortisation of capital expenditure actually paid to obtain a licence to operate telecommunication services.
Can licence fee be deducted in one year?
Ordinarily it is spread equally over the relevant years of the licence, rather than deducted fully in one year.
Can depreciation also be claimed?
No. Section 35ABB(8) bars a second depreciation deduction on the same expenditure where Section 35ABB deduction has been allowed.
Information is general in nature. Actual deductibility depends on licence terms, payment evidence, applicable tax year and current law.