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.
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
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.