Match the funding to the assets it supports
For tax year 2026–27 beginning 1 April 2026, section 39(1)(d) of the Income-tax Act, 2025 reduces actual cost for acquisition-related subsidy, grant or reimbursement received from the specified sources, including any other person. If it is not directly relatable to an individual asset, section 39(3) allocates it by the asset’s cost divided by the cost of all assets in respect of or by reference to which the assistance is received. This article checks the Finance Act, 2026 text on 27 October 2026; it does not apply these section numbers to the earlier FY 2025–26 return. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Read the sanction before building the allocation
Start with the grant agreement, sanctioned purpose, cost schedule, recipient and receipt evidence. A project name is insufficient: identify which acquisitions actually form the reference pool. Maintain direct attribution where the documents identify one asset; use the statutory allocation for the non-direct portion. Do not distribute assistance across every asset in the enterprise just to reduce the adjustment per item. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Use a reproducible cost-pool schedule
For a qualifying non-direct amount A, asset cost B and reference-pool cost C, reduction is A × B ÷ C. Record all three inputs and reconcile allocated reductions to A. Keep rounding differences visible and resolve them consistently in the working. The illustrations use whole ₹ lakh amounts and assume agreed cost inputs with no overlapping reductions; they do not resolve a disputed grant condition or an uncertain cost base. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Separate other cost reductions
Section 39(1)(a) separately addresses cost met by another person or authority, directly or indirectly; paragraph (b) addresses GST input credit claimed and allowed. Trace whether two descriptions concern the same funded amount before applying the bridge. A single ₹20 lakh reimbursement should not be subtracted twice merely because it can be described as both assistance and third-party funding. Separate, non-overlapping funding streams require their own evidence and treatment. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Reconcile the tax register to the books
Accounting presentation does not determine tax actual cost. An accounting deferred-income balance is not an instruction to leave the depreciable tax cost unreduced. Maintain a gross-cost, qualifying assistance, other adjustments and tax-cost bridge for each asset. This article determines the cost input; classification into the proper depreciation block, prescribed rates, use conditions and any later grant refund require separate analysis. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Keep assistance income and timing questions visible
The income definition in section 2(49)(w) excludes the specified subsidy, grant or reimbursement taken into account in actual cost under section 39(1)(d) and (3). Reconcile the same assistance across the income and asset workings so the treatment is coherent. Do not infer that every capital-labelled grant is excluded. Where assistance is received after earlier depreciation, establish the applicable year and adjustment mechanics before changing an opening balance; the examples assume acquisition and receipt in the same tax year. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39.
Applicable primary references
Income-tax Act, 2025 as amended by Finance Act, 2026: sections 2(49)(w) and 39
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: A grant tied to one machine
All amounts are ₹ lakh. A machine costs 120 and an acquisition-related grant of 30 is directly tied to it. Assuming no other adjustments, tax actual cost is 120 − 30 = 90. There is no need to dilute that direct reduction across unrelated equipment.
Illustrative example 2: A shared two-asset pool
A qualifying grant of 60 relates jointly to machines costing 100 and 200, without individual attribution. Total reference cost is 300. Reductions are 60 × 100 ÷ 300 = 20 and 60 × 200 ÷ 300 = 40. Tax costs are 80 and 160; reductions total 60.
Illustrative example 3: Exclude an unrelated acquisition
Assets A and B cost 80 and 120 and are the complete grant reference pool. An unrelated asset C costs 300. Allocate the 50 grant over 200, not 500: reductions are 20 and 30. Tax costs are A 60, B 90 and C 300, totalling 450 against original costs 500.
Illustrative example 4: Combine direct and pooled components
The sanction separately identifies 12 for asset A and 30 shared between A and B. A costs 60 and B 90. Allocate the pooled amount 12 to A and 18 to B. Total reductions are A 24 and B 18; tax costs are 36 and 72. Combined reduction 42 matches the assistance received.
Illustrative example 5: Avoid counting the same reimbursement twice
A machine has gross invoiced cost 118, including GST input credit of 18 assumed claimed and allowed. A separate 20 acquisition reimbursement is received from a private counterparty. Tax cost is 118 − 18 − 20 = 80. Treating the same 20 again as additional third-party funding would incorrectly produce 60.
Illustrative example 6: Reconcile three allocated assets
A non-direct 36 grant relates to assets costing 40, 80 and 120. The 240 pool yields reductions of 6, 12 and 18. Tax costs are 34, 68 and 102, totalling 204. That equals 240 − 36 and provides both an asset-level and total control.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the applicable tax year | 1961/2025 Act period distinction |
| 2 | Obtain the assistance documents | Sanction, agreement and receipt |
| 3 | Test acquisition linkage | Supported asset acquisition purpose |
| 4 | Isolate directly related amounts | Asset-specific allocation |
| 5 | Define the non-direct reference pool | Included and excluded assets |
| 6 | Verify cost inputs | Invoice and other cost adjustments |
| 7 | Apply A times B divided by C | Asset-by-asset calculation |
| 8 | Eliminate overlapping reductions | Funding-stream reconciliation |
| 9 | Bridge accounting and tax treatment | Tax register and assistance income working |
| 10 | Approve the closing schedule | Totals, rounding and review evidence |
Sixteen practitioner FAQs
1. Is this an AY 2026–27 ITR-6 row guide?
No. It addresses actual cost under the 2025 Act for tax year 2026–27, rather than renumbering the earlier financial-year return.
2. Must the assistance come only from Government?
Section 39(1)(d) also includes an authority established under law and any other person.
3. Does the word capital on a sanction decide the treatment?
No. Establish the acquisition relationship and applicable provision.
4. When is direct attribution preferable?
When the assistance is directly relatable to the identified asset rather than an undifferentiated eligible pool.
5. What does A represent?
The total qualifying subsidy, grant or reimbursement not directly relatable to the individual asset.
6. What does B represent?
The cost of the acquired asset whose actual cost is being determined.
7. What does C represent?
The cost of all assets in respect of or by reference to which that assistance is received.
8. Can C include unrelated enterprise assets?
Not merely because they belong to the same taxpayer; document the assistance reference pool.
9. Can a sanction have direct and shared components?
Yes. Keep the components separate and apply their respective attribution workings.
10. Does accounting deferred income settle tax depreciation cost?
No. Prepare a separate statutory actual-cost bridge.
11. What if GST credit was claimed and allowed?
Identify its separate section 39(1)(b) reduction in the working.
12. Should one reimbursement be deducted under two labels?
The same funded cost should not be reduced twice; reconcile overlapping descriptions.
13. How do I check an allocation is complete?
The sum of the asset reductions should reconcile to the non-direct assistance amount, subject to explained rounding.
14. Does this article prescribe a depreciation rate?
No. The applicable block, rate and use conditions remain separate determinations.
15. Is a late-received grant automatically a current income item?
Do not assume that result. Examine the assistance and applicable timing and asset-adjustment provisions.
16. Where should receipt evidence be kept?
With the sanction, cost-pool calculation, tax register and income-treatment reconciliation.
Conclusion
Allocate acquisition-related grants to tax asset costs under section 39, using the correct asset pool, direct attribution and a reconciled funding bridge.