Section 35AB — Expenditure on know-how

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

Expenditure on know-how.

35AB. (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year

relevant to the assessment year commencing on or before the 1st day of April, 1998 any lump sum

consideration for acquiring any know-how for use for the purposes of his business, one-sixth of the amount

so paid shall be deducted in computing the profits and gains of the business for that previous year, and the

balance amount shall be deducted in equal instalments for each of the five immediately succeeding previous

years.

(2) Where the know-how referred to in sub-section (1) is developed in a laboratory, university or institution

referred to in sub-section (2B) of section 32A, one-third of the said lump sum consideration paid in the

previous year by the assessee shall be deducted in computing the profits and gains of the business for that

year, and the balance amount shall be deducted in equal instalments for each of the two immediately

succeeding previous years.

(3) Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the

amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated

company or the resulting company, as the case may be, shall be entitled to claim deduction under this section

in respect of such undertaking to the same extent and in respect of the residual period as it would have been

allowable to the amalgamating company or the demerged company, as the case may be, had such

amalgamation or demerger not taken place.

Explanation.—For the purposes of this section, "know-how" means any industrial information or technique

likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other

sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of

access thereto).

Function in the statutory architecture

Section 35AB allowed a deduction for any lump sum consideration paid in a previous year relevant to an assessment year commencing on or before 1-4-1998 for acquiring know-how for use in the business. One-sixth of the amount was deducted in the year of payment, and the balance in equal instalments over the next five years. Where the know-how was developed in a laboratory, university or institution referred to in s. 32A(2B), one-third was deducted in the year of payment and the balance over the next two years.

“Know-how” means industrial information or technique likely to assist in the manufacture or processing of goods, or in working a mine, oil well or other source of mineral deposits, including searching for, discovering or testing deposits or winning access to them.

Operative consequences

Deduction was spread over six (or three) years rather than allowed in full.
On transfer of an undertaking in an amalgamation or demerger, the amalgamated or resulting company claimed the remaining instalments for the residual period (sub-section (3)).

Status

The section has no new application for AY 2026-27. Only payments relating to assessment years up to AY 1998-99 qualified, and the instalment periods have ended. 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.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 35AB — amortisation of lump sum paid for know-how	No corresponding provision in the Income-tax Act, 2025