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Deposits could not be withdrawn within five years except for scheme purposes or on closure of business, death, partition of a Hindu undivided family, dissolution of a firm or liquidation of a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.
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
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.