Identify the qualifying licence and the actual payment
For FY 2025–26 and AY 2026–27, section 35ABB of the Income-tax Act, 1961 applies to qualifying capital expenditure for acquiring the right to operate telecommunication services for which payment was actually made to obtain a licence. An accrued liability alone does not start the deduction. This guide deals with original licence-cost amortisation while the licence remains in force. Spectrum rights have a separate provision in section 35ABA, and transfer or succession events require separate analysis.
Read the applicable text: Income-tax Act, 1961, sections 35ABA and 35ABB CBDT Form 3CD, clause 19 Notified ITR-6 for AY 2026–27 ITR-6 corrigendum Official utilities, schema and validation rules.
Count relevant previous years for each supported payment
Where the licence fee is paid before the telecom business starts, begin with the previous year in which that business commences. Otherwise begin with the previous year of actual payment. Count that year and the later previous years during which the licence covered by that payment remains in force. The fraction is based on the number of relevant previous years, not the number of months remaining in the first year. The appropriate fraction is one divided by that count. Verify actual payment, commencement and the legal end of the licence before computing the fraction. For separate payments that qualify, keep separate start years and denominators rather than averaging them.
Separate cash evidence, accounting amortisation and statutory amortisation
Keep the licence terms, authority payment records, bank evidence and any changes to the right together. Separate amounts paid to acquire the qualifying right from charges for separately supplied services. For the 1999 telecom policy before it, the Supreme Court in the Bharti Hexacom appeals held that both the entry fee and the variable annual licence fee were capital and could be amortised under section 35ABB. An annual payment schedule alone does not make a qualifying licence payment a revenue expense; verify the licence terms and applicable regime. A book amortisation schedule may start on a different date or use a different useful life. Section 35ABB(8) prevents section 32(1) depreciation on the same expenditure for the same or a subsequent previous year where a deduction under 35ABB(1) is claimed and allowed.
Reconcile the return from the starting profit
Form 3CD clause 19 has a specific section 35ABB row, with separate amounts debited to profit and loss and admissible. For the notified AY ITR-6, Schedule BP A item 32 is the residual line for other allowable deductions. Use it for a supported instalment to the extent the deduction is not otherwise reflected in the tax computation, including when a book charge has been reversed. Item 29 is for section 35, 35CCC or 35CCD. Document the reversal and statutory allowance separately, and do not deduct a retained amount twice. Compare the final calculation with the official AY utility and validation rules.
Close the workpaper by licence and year
Tie the opening unallowed expenditure to prior filed computations and orders. Add qualifying payments, subtract supported instalments and explain differences between the statutory ledger and book carrying value. Keep transfers, surrender, mergers and changes in term out of the routine roll-forward until their legal consequences have been reviewed. Check the taxpayer's applicable filing date separately from the licence payment date.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Paid before commencement
A company pays ₹60 lakh in FY 2024–25 and begins the licensed business in FY 2025–26. The licence remains in force through FY 2029–30. There are five relevant years, so the first annual deduction is ₹12 lakh and the closing unallowed amount is ₹48 lakh.
Illustrative example 2: Paid after commencement
A company already operating pays ₹32 lakh in FY 2025–26 for a qualifying right in force through FY 2028–29. Four relevant years give an annual ₹8 lakh deduction and ₹24 lakh remains after the first year.
Illustrative example 3: Separate qualifying payments
One ₹24 lakh qualifying payment starts in FY 2024–25 and another ₹18 lakh starts in FY 2025–26. Both licence cost cohorts end in FY 2027–28. The respective fractions are one fourth and one third, giving ₹6 lakh each and ₹12 lakh in FY 2025–26.
Illustrative example 4: Outstanding liability
A company recognises ₹45 lakh of qualifying licence expenditure but pays only ₹30 lakh this year, after commencement. If the paid amount qualifies over five relevant years, the current deduction is ₹6 lakh. The unpaid ₹15 lakh does not enter that cohort.
Illustrative example 5: Book-to-tax bridge
Profit of ₹90 lakh already includes a ₹14 lakh book amortisation debit; the supported tax instalment is ₹10 lakh. Reversing the book amount and deducting the instalment produces ₹94 lakh before other adjustments.
Illustrative example 6: Prior cohort reconciliation
A ₹40 lakh cohort has five annual instalments of ₹8 lakh. After two prior instalments and one current instalment, total allowed under the assumptions is ₹24 lakh and ₹16 lakh remains.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Verify the legal licence | Licence instrument and right identifier |
| 2 | Classify qualifying capital costs | Cost and contractual analysis |
| 3 | Prove actual payment | Bank and authority evidence |
| 4 | Determine business commencement | Commercial operations records |
| 5 | Identify the final in-force year | Licence term and any changes |
| 6 | Compute each fraction | Payment cohort workbook |
| 7 | Reconcile historic deductions | Returns and assessment records |
| 8 | Review accounting and depreciation | Book amortisation and tax fixed-asset bridge |
| 9 | Tie clause 19 and Schedule BP | Audit report and utility computation |
| 10 | Approve the closing cohort register | Payment and deduction roll-forward |
Sixteen practitioner FAQs
1. Does an unpaid accrual qualify this year?
Actual payment is required for this route.
2. Which Act governs the stated AY?
The Income-tax Act, 1961 governs this FY 2025–26 return.
3. Does paying before commencement start the claim immediately?
The relevant years start with business commencement in that case.
4. What if the business is already operating?
Generally begin with the previous year of actual payment under the stated conditions.
5. Is the denominator the original licence term in every case?
Count the relevant previous years under the provision for the qualifying payment.
6. Do all payment cohorts have the same denominator?
No. Test their respective start years and licence terms.
7. Is spectrum cost reported as licence cost?
Review the distinct section 35ABA route for spectrum.
8. Can book useful life replace the statutory fraction?
No. Prepare a separate tax computation.
9. Can section 32 also apply to the same allowed expenditure?
Section 35ABB(8) bars duplicate depreciation on the terms stated there.
10. Where is the tax audit disclosure?
Form 3CD clause 19 contains a 35ABB row.
11. Should BP item 29 take the instalment?
No. It covers the provisions specified there, not 35ABB.
12. Can a book debit and an additional full deduction both stand?
Reconcile whether the debit was retained or reversed and avoid a duplicate allowance.
13. What if the licence is transferred?
Review the specific transfer provisions separately before using the ordinary instalment schedule.
14. Can ordinary recurring service charges simply enter the cohort?
Classify them on their actual terms and applicable law first.
15. What if the old return and working show different opening values?
Reconcile the filed position and subsequent orders before claiming another instalment.
16. What is the key evidence for a new cohort?
The qualifying right, actual payment, commencement where relevant and applicable licence term.
Official sources
Income-tax Act, 1961, sections 35ABA and 35ABB CBDT Form 3CD, clause 19 Notified ITR-6 for AY 2026–27 ITR-6 corrigendum Official utilities, schema and validation rules
Supreme Court: Bharti Hexacom and connected telecom licence appeals, 16 October 2023