Three eligibility links must support the expenditure
For FY 2025–26 / AY 2026–27, section 36(1)(xii) of the Income-tax Act, 1961 covers non-capital expenditure incurred by a corporation or body corporate constituted or established by a Central, State or Provincial Act, notified by the Central Government for this clause, for objects and purposes authorised by its constituting Act. Government ownership or a public-service description alone does not establish this deduction.
Read the applicable text: Income Tax Department: section 36 text Department deduction guidance Department transition guidance.
Constitution by an Act is a factual gate
Retain the establishing statute and identify the precise legal entity. An ordinary company incorporated under general company legislation should not assume that it is a corporation constituted or established by a specific Act merely because its shareholder is the government. Examine the actual legal basis rather than treating corporate status and statutory constitution as interchangeable labels.
Notification is a separate requirement
Retrieve the actual Central Government Gazette notification covering the body, its period and any conditions or amendments. A notification for an exemption, another deduction or another legal entity is not automatically a notification for section 36(1)(xii). This guide does not certify a named body as eligible. The illustrations expressly assume independently verified entity and notification eligibility; the assumed facts cannot replace that evidence in an actual return.
Map the spending to authorised objects
Link the expenditure to the objects and purposes authorised by the establishing Act. Board approval, a budget line or a desirable social outcome does not alone demonstrate that link. Maintain programme descriptions, statutory powers, contracts, work evidence and the expense ledger. Separate unsupported or unrelated spending for review rather than applying an overall eligibility percentage to every expense.
Capital expenditure stays outside this clause
Classify the substance of each cost rather than rely solely on its book heading. A qualifying purpose does not remove the express capital-expenditure exclusion. Separate asset acquisition from independently established revenue expenditure in a mixed project. Exclusion from this clause does not itself decide depreciation, another deduction or permanent disallowance; those require their own legal analysis. Applicable general computation restrictions must also be reviewed separately.
Reconcile the claim once
Prepare gross expenditure, capital exclusions, purpose exclusions, other supported adjustments and the remaining eligible population. If a qualifying expense already reduces the book-profit starting point and requires no adjustment, do not deduct it again merely because a separate section 36 schedule lists it. Preserve the classification and tax bridge. FY 2025–26 remains within the earlier-year law framework despite filing after the 2025 Act commenced.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Mixed programme spending
Assume an eligible notified statutory body incurs ₹20 lakh, comprising ₹12 lakh verified authorised revenue expenditure and ₹8 lakh capital acquisition. The illustrated clause (xii) population is ₹12 lakh. The ₹8 lakh needs separate asset and tax treatment; authorised purpose does not turn it into revenue expenditure.
Illustrative example 2: Purpose exclusions
Of ₹15 lakh non-capital spending, ₹11 lakh is independently established as incurred for authorised statutory objects and ₹4 lakh is established as outside that purpose for this clause. The clause-specific population is ₹11 lakh. No conclusion on a different deduction is implied.
Illustrative example 3: Shared project evidence
A ₹10 lakh service contract has work records supporting ₹7 lakh for authorised objects and ₹3 lakh for other work. On the stated verified allocation, ₹7 lakh enters this working. A 70% split invented without records would not establish eligibility.
Illustrative example 4: Expense already in book profit
Verified eligible expense ₹6 lakh is already charged in the accounts and included in the computation starting point. With no other applicable adjustment assumed, additional deduction for the same amount is nil. Deducting another ₹6 lakh would count ₹12 lakh against a ₹6 lakh expense.
Illustrative example 5: Reconciled programme total
Three verified authorised revenue programmes incur ₹3 lakh, ₹4.50 lakh and ₹2.50 lakh. Total eligible population before independently applicable restrictions is ₹10 lakh. Retain distinct programme support instead of treating the aggregate as proof of the statutory purpose.
Illustrative example 6: Entity gate cannot be averaged
Two separate bodies spend ₹8 lakh and ₹5 lakh. Only the first is independently established as satisfying the constituting-Act and notification gates for the stated period. The illustrated supported population is ₹8 lakh, not combined ₹13 lakh. Eligibility cannot be lent by one legal entity to another.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the earlier-year period | FY 2025–26 / AY 2026–27. |
| 2 | Identify the legal entity | Constituting or establishing Act. |
| 3 | Retrieve the clause-specific notification | Central Government Gazette text and scope. |
| 4 | Check operative conditions | Period, amendments and entity identity. |
| 5 | Map authorised objects | Actual statutory provisions and programme work. |
| 6 | Classify each expense | Revenue versus capital substance. |
| 7 | Support mixed allocations | Contracts and work records, not arbitrary ratios. |
| 8 | Review other computation restrictions | Actual applicable payment and tax rules. |
| 9 | Prevent duplicate deductions | Book-profit and tax-computation bridge. |
| 10 | Approve the evidence file | Eligible population, exclusions and unresolved issues. |
Sixteen practitioner FAQs
1. Does government ownership alone establish eligibility?
No. The statutory constitution and notification requirements also matter.
2. Can every body corporate use this clause?
No. Apply all specified conditions.
3. Which government issues the required notification?
The clause requires Central Government notification in the Official Gazette.
4. Is a notification under a different provision sufficient?
Not automatically. Verify clause-specific coverage.
5. Does this article confirm any named body’s status?
No. Actual entity and notification evidence is required.
6. What purpose must the expenditure serve?
Objects and purposes authorised by the Act constituting or establishing the body.
7. Is Board approval alone enough?
No. Establish the link to statutory objects.
8. Is capital expenditure included?
No. The clause expressly excludes it.
9. Does exclusion here mean no tax relief anywhere?
Not necessarily. Review any other independently applicable provision.
10. Can a mixed project require allocation?
Yes. Use supportable item and work evidence.
11. Does an overall public-service percentage prove each cost?
No. Maintain expense-specific support.
12. Is a book label conclusive on capital character?
No. Review the substance of the cost.
13. Can an expense already deducted be deducted again?
No. Reconcile its treatment once.
14. Do general computation restrictions disappear?
No. Review their actual applicability separately.
15. Can one group entity use another entity’s notification?
Not merely because of their relationship.
16. Which enactment applies to the stated FY?
The 1961 Act earlier-year framework, with the applicable amendments.
Official sources
Income Tax Department: section 36 text Department deduction guidance Department transition guidance