The company and employee-purpose tests come first
Section 32(i) of the Income-tax Act, 2025 covers bona fide expenditure incurred by a company to promote family planning amongst its employees. For capital expenditure, one-fifth is deductible in the tax year incurred and the balance in equal instalments in the four immediately succeeding tax years, subject to the clause’s other conditions. This guide uses the Act as amended by Finance Act, 2026 for tax year 2026–27, checked on 27 October 2026. It does not extend this company-specific rule to an ordinary partnership. Income-tax Act, 2025, as amended by Finance Act, 2026: section 32(i).
Establish purpose before classifying the cost
Keep the approved programme, employee population, provider contract, invoices and evidence of the activity. General wellness, unrelated donations or benefits for a different population should not be relabelled as qualifying expenditure merely because the same provider organises them. For a combined programme, obtain a supported breakup; do not invent a standard qualifying percentage.
Revenue and capital need different workings
Identify expenditure of a revenue nature separately from any capital element. A capital label on an invoice is not conclusive; analyse the underlying expenditure. Where the qualifying amount is established, use its own five-instalment schedule rather than importing an ordinary depreciation percentage or an arbitrary ten-year write-off. Reconcile the incurred amount, book treatment and actual tax deduction.
Retain the clause’s express cross-references
Section 32(i)(B) applies sections 33(11) and 112(3) as specified, and clause (C) applies its listed provisions to an asset representing capital expenditure in the stated manner. Accordingly this is not an unconditional promise that every scheduled amount can be absorbed immediately or that asset disposal has no consequences. The models assume eligibility, sufficient absorbable income and no disposal, cessation, recapture or other adjustment; carry-forward, priority and asset-event cases require their own statutory working.
Prevent duplicate book and tax deductions
Keep each expenditure tranche identified by year. Reconcile the amount already reducing the profit starting figure before making a tax adjustment. A full capital charge in the books may require an add-back with the permitted instalment then deducted; a capitalised cost may need a deduction without the same add-back. Review the company’s applicable tax framework and other conditions rather than treating the schedule as the final tax payable calculation.
Applicable primary references
Income-tax Act, 2025, as amended by Finance Act, 2026: section 32(i)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Single capital tranche
Assume ₹5,00,000 qualifying capital expenditure is incurred in 2026–27. One-fifth is ₹1,00,000; the remaining ₹4,00,000 is scheduled as ₹1,00,000 in each of four immediately succeeding tax years under the stated law. Total scheduled deduction is ₹5,00,000, subject to the assumptions above and future applicable law.
Illustrative example 2: Revenue plus capital
A qualifying programme has ₹2,00,000 revenue expenditure and ₹3,00,000 capital expenditure. The capital instalment is ₹60,000. The current-year model deduction is ₹2,60,000, not the entire ₹5,00,000, assuming all applicable conditions and sufficient income.
Illustrative example 3: Combined programme allocation
A documented ₹4,00,000 capital project includes ₹3,00,000 qualifying employee family-planning expenditure and ₹1,00,000 unrelated facilities. The qualifying annual instalment is ₹60,000 on ₹3,00,000. The remaining ₹1,00,000 requires separate legal classification rather than automatic inclusion.
Illustrative example 4: Overlapping tranches
An older valid tranche has a current instalment of ₹80,000 and a new ₹6,00,000 qualifying tranche produces ₹1,20,000. The current scheduled total is ₹2,00,000. Preserve both tranche identities so the older balance is not restarted as a new five-year schedule.
Illustrative example 5: Books expense capital expenditure
Assume ₹5,00,000 qualifying capital expenditure is fully charged in the profit starting figure. Add back ₹5,00,000 and deduct the ₹1,00,000 current instalment, giving a net upward adjustment of ₹4,00,000 for this item. This is a book-to-tax bridge, not a tax-rate calculation.
Illustrative example 6: Reconcile remaining instalments
A ₹7,50,000 qualifying tranche has annual instalments of ₹1,50,000. Two valid instalments total ₹3,00,000, leaving three scheduled instalments totalling ₹4,50,000. The ₹4,50,000 balance remains scheduled for the three future years, subject to the applicable conditions; it is not an automatic deduction of the whole balance in the next year.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the claimant is a company | Legal identity and tax year |
| 2 | Verify bona fide employee purpose | Programme and employee evidence |
| 3 | Trace expenditure incurred | Contracts, invoices and ledger |
| 4 | Separate unrelated components | Supported allocation |
| 5 | Classify revenue and capital | Reasoned expenditure analysis |
| 6 | Build a capital-tranche schedule | One-fifth and four subsequent instalments |
| 7 | Check other statutory conditions | Cross-references and applicable regime |
| 8 | Review asset events and absorption | Separate disposal or carry-forward working |
| 9 | Reconcile book treatment | Starting profit and adjustments |
| 10 | Retain the completed claim file | Tranche balances and no duplicate claims |
Sixteen practitioner FAQs
1. Is this rule available to every employer?
The clause expressly addresses expenditure incurred by a company.
2. Does every wellness programme qualify?
Establish the specific bona fide family-planning purpose amongst employees.
3. Can an unrelated donation be included automatically?
No. Analyse the expenditure and eligible population separately.
4. What happens to the qualifying capital element?
It follows the one-fifth and four succeeding-year instalment structure, subject to the clause’s conditions.
5. Does the clause prescribe a ten-year write-off?
No. Do not replace its schedule with an invented period.
6. Can an arbitrary allocation percentage be used?
Support the actual breakup of a combined programme.
7. Does invoice wording decide capital versus revenue?
Inspect the underlying expenditure and accounting facts.
8. Does the schedule itself calculate tax savings?
No. It measures deductions; rates, income and other conditions are separate.
9. Are all scheduled instalments necessarily absorbed immediately?
No. The express statutory cross-references and actual income position matter.
10. Does this article calculate carry-forward priority?
No. It flags the relevant cross-references and confines the examples to sufficient-income facts.
11. What if the related asset is disposed of?
Review the provisions applied by clause (C); do not assume the remaining schedule continues unchanged.
12. Can old tranches be restarted each year?
No. Preserve the original incurred year and remaining instalment count.
13. How should overlapping tranches be presented?
Show each tranche and aggregate only the current valid instalments.
14. Can book expense and a separate full tax claim both stand?
Reconcile them to prevent the same expenditure being deducted twice.
15. Should future instalments be claimed without a later-year check?
Recheck the law and conditions applicable to that year.
16. What should the final file contain?
Purpose and eligibility evidence, cost classification, tranche schedule, statutory checks and the book-to-tax bridge.
Conclusion
Test the company and employee-purpose conditions, separate revenue and capital expenditure, and maintain a tranche-wise deduction schedule without duplicate claims.