Section 32AB — Investment deposit account

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Investment deposit account.

32AB. (1) Subject to the other provisions of this section, where an assessee, whose total income includes

income chargeable to tax under the head "Profits and gains of business or profession", has, out of such

income,—

(a) deposited any amount in an account (hereafter in this section referred to as deposit account)

maintained by him with the Development Bank before the expiry of six months from the end of the

previous year or before furnishing the return of his income, whichever is earlier; or

(b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new

machinery or plant, without depositing any amount in the deposit account under clause (a),

in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the

scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing

and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed

a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set

off under section 72) of—

(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so

utilised; or

(ii) a sum equal to twenty per cent of the profits of business or profession as computed in the accounts

of the assessee audited in accordance with sub-section (5),

whichever is less :

Provided that where such assessee is a firm, or any association of persons or any body of individuals, the

deduction under this section shall not be allowed in the computation of the income of any partner, or as the

case may be, any member of such firm, association of persons or body of individuals:

Provided further that no such deduction shall be allowed in relation to the assessment year commencing on

the 1st day of April, 1991, or any subsequent assessment year.

(2) For the purposes of this section,—

(i) [***]

(ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the

assessee was used by any other person, if it was not at any time previous to the date of such

acquisition owned by any person resident in India;

(iii) "new machinery or plant" includes machinery or plant which before its installation by the assessee

was used outside India by any other person, if the following conditions are fulfilled, namely :—

(a) such machinery or plant was not, at any time previous to the date of such installation by

the assessee, used in India;

(b) such machinery or plant is imported into India from any country outside India; and

(c) no deduction on account of depreciation in respect of such machinery or plant has been

allowed or is allowable under this Act in computing the total income of any person for any

period prior to the date of the installation of the machinery or plant by the assessee;

(iv) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).

(3) The profits of business or profession of an assessee for the purposes of sub-section (1) shall be an

amount arrived at after deducting an amount equal to the depreciation computed in accordance with the

provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the

requirements of Parts II and III of the Schedule VI to the Companies Act, 1956 (1 of 1956), as increased by

the aggregate of—

(i) the amount of depreciation;

(ii) the amount of income-tax paid or payable, and provision therefor;

(iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

(iv) the amounts carried to any reserves, by whatever name called;

(v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained

liabilities;

(vi) the amount by way of provision for losses of subsidiary companies; and

(vii) the amount or amounts of dividends paid or proposed,

if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from

reserves or provisions, if such amounts are credited to the profit and loss account.

(4) No deduction under sub-section (1) shall be allowed in respect of any amount utilised for the purchase

of—

(a) any machinery or plant to be installed in any office premises or residential accommodation,

including any accommodation in the nature of a guest-house;

(b) any office appliances (not being computers);

(c) any road transport vehicles;

(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether

by way of depreciation or otherwise) in computing the income chargeable under the head "Profits

and gains of business or profession" of any one previous year;

(e) any new machinery or plant to be installed in an industrial undertaking, other than a small-scale

industrial undertaking, as defined in section 80HHA, for the purposes of business of construction,

manufacture or production of any article or thing specified in the list in the Eleventh Schedule.

(5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or

profession of the assessee for the previous year relevant to the assessment year for which the deduction is

claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section

288 before the specified date referred to in section 44AB and the assessee furnishes by that date the report

of such audit in the prescribed form duly signed and verified by such accountant :

Provided that in a case where the assessee is required by or under any other law to get his accounts audited,

it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of

such business or profession audited under such law and furnishes the report of the audit as required under

such other law and a further report in the form prescribed under this sub-section.

(5A) Any amount standing to the credit of the assessee in the deposit account shall not be allowed to be

withdrawn before the expiry of a period of five years from the date of deposit except for the purposes

specified in the scheme or in the circumstances specified below :—

(a) closure of business;

(b) death of an assessee;

(c) partition of a Hindu undivided family;

(d) dissolution of a firm;

(e) liquidation of a company.

Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-section

shall affect the operation of the provisions of sub-section (5AA) or sub-section (6) in relation to any

withdrawals made from the deposit account either before or after the expiry of a period of five years from

the date of deposit.

(5AA) Where any amount, standing to the credit of the assessee in the deposit account, is withdrawn during

any previous year by the assessee in the circumstance specified in clause (a) or clause (d) of sub-section

(5A), the whole of such amount shall be deemed to be the profits and gains of business or profession of that

previous year and shall accordingly be chargeable to income-tax as the income of that previous year, as if

the business had not closed or, as the case may be, the firm had not been dissolved.

(5B) Where any amount standing to the credit of the assessee in the deposit account is utilised by the

assessee for the purposes of any expenditure in connection with the business or profession in accordance

with the scheme, such expenditure shall not be allowed in computing the income chargeable under the head

"Profits and gains of business or profession".

(6) Where any amount, standing to the credit of the assessee in the deposit account, released during any

previous year by the Development Bank for being utilised by the assessee for the purposes specified in the

scheme or at the closure of the account [in circumstances other than the circumstances specified in clauses

(b), (c) and (e) of sub-section (5A)], is not utilised in accordance with, and within the time specified in, the

scheme, either wholly or in part, the whole of such amount or, as the case may be, part thereof which is not

so utilised shall be deemed to be the profits and gains of business or profession of that previous year and

shall accordingly be chargeable to income-tax as the income of that previous year.

(7) Where any asset acquired in accordance with the scheme is sold or otherwise transferred in any previous

year by the assessee to any person at any time before the expiry of eight years from the end of the previous

year in which it was acquired, such part of the cost of such asset as is relatable to the deductions allowed

under sub-section (1) shall be deemed to be the profits and gains of business or profession of the previous

year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as

the income of that previous year:

Provided that nothing in this sub-section shall apply—

(i) where the asset is sold or otherwise transferred by the assessee to Government, a local authority, a

corporation established by or under a Central, State or Provincial Act or a Government company as

defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(ii) where the sale or transfer of the asset is made in connection with the succession of a firm by a

company in the business or profession carried on by the firm as a result of which the firm sells or

otherwise transfers to the company any asset and the scheme continues to apply to the company in

the manner applicable to the firm.

Explanation.—The provisions of clause (ii) of the proviso shall apply only where—

(i) all the properties of the firm relating to the business or profession immediately before the

succession become the properties of the company;

(ii) all the liabilities of the firm relating to the business or profession immediately before the succession

become the liabilities of the company; and

(iii) all the shareholders of the company were partners of the firm immediately before the succession.

(8) The Central Government may, if it considers it necessary or expedient so to do, by notification in the

Official Gazette, omit any article or thing from the list of articles or things specified in the Eleventh

Schedule.

(9) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the

Official Gazette, that the provisions of this section shall not apply to any class of assessees, with effect from

such date as it may specify in the notification.

(10) Where a deduction has been allowed to an assessee under this section in any assessment year, no

deduction shall be allowed to the assessee under sub-section (1) of section 32A in the said assessment year

(hereinafter referred to as the initial assessment year) and a block of further period of four years beginning

with the assessment year immediately succeeding the initial assessment year.

Explanation.—In this section,—

(a) "computers" does not include calculating machines and calculating devices;

(b) "Development Bank" means—

(i) in the case of an assessee carrying on business of growing and manufacturing tea in India,

the National Bank for Agriculture and Rural Development established under section 3 of

the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);

(ii) in the case of other assessees, the Industrial Development Bank of India established under

the Industrial Development Bank of India Act, 1964 (18 of 1964) and includes such bank

or institution as may be specified in the scheme in this behalf.

Function in the statutory architecture

Section 32AB allowed an assessee with business or profession income a deduction for amounts deposited with the Development Bank in a deposit account, within six months from the end of the previous year or before filing the return (whichever was earlier), or used during the year to buy a new ship, new aircraft or new machinery or plant, under a scheme framed by the Central Government (or approved by the Tea Board for tea businesses). The deduction was the lower of the amount deposited or used and twenty per cent of the business profits as computed in audited accounts.

The deduction was allowed before the set-off of brought-forward losses under s. 72. A firm, association of persons or body of individuals got the deduction itself; it was not allowed again to partners or members. Accounts had to be audited and the audit report furnished by the specified date under s. 44AB.

Operative consequences

Deposits could not be withdrawn within five years except for scheme purposes or on closure of business, death, partition of a Hindu undivided family, dissolution of a firm or liquidation of a company (sub-section (5A)).
Withdrawals on closure of business or dissolution of a firm were deemed business profits of that year (sub-section (5AA)).
Amounts released but not used as the scheme required were deemed profits (sub-section (6)); assets bought under the scheme and transferred within eight years led to deemed profits (sub-section (7)).
Expenditure met from the deposit account was not deductible again (sub-section (5B)).

Status

The section is not operative for AY 2026-27. The second proviso to sub-section (1) states that “no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year”. The Finance Act, 2026 does not amend this section.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject there is no provision in the Income-tax Act, 2025.

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Income-tax Act, 1961	Income-tax Act, 2025
s. 32AB — deduction for deposits in an investment deposit account or purchase of new assets under a scheme	No corresponding provision in the Income-tax Act, 2025