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License fee for Telecommunication Services – Section 35ABB

Eligible expenditure – Any capital expenditure incurred for acquiring any right to operate telecommunication services.

Expenditure can be incurred before commencement of business or after commencement of business.

Payment has to be actually made for obtaining license.

Period of deduction – Such expenditure is allowed as a deduction over the period for which the license remains effective.  Calculation is made on yearly basis, therefore date of payment or date of effectiveness of license in a year doesn’t matter.

If the expenditure is incurred before the commencement of business, then deduction starts from the year of commencement of the business. Such expenditure is allowed for the remaining time for which the license remains effective.

Transfer of license –

If whole of license is transferred

  • Where proceeds are less than the expenditure remaining unallowed –

Expenditure remaining unallowed as reduced by the amount of sale proceeds is allowed as a deduction in the year of transfer.

  • Where proceeds are more than the expenditure remaining unallowed –

Amount of sale proceeds or amount of expenditure incurred to obtaining license (whichever is less)  as reduced by the expenditure remaining unallowed shall be taxable as business profits in the year of transfer, whether business exists or not in that year.

If the sale proceeds is more than the expenditure incurred to obtain license, then such excess is taxable as Capital Gain under Section 45.

If part of the license is transferred

  • Where proceeds are less than the expenditure remaining unallowed –

In this case the deduction allowed under this section for remaining period will be calculated as follows:

(Expenditure remaining unallowed less sale proceeds)/No. of years remaining for effectiveness of license

  • Where proceeds are more than the expenditure remaining unallowed –

Amount of sale proceeds or amount of expenditure incurred to obtaining license (whichever is less)  as reduced by the expenditure remaining unallowed shall be taxable as business profits in the year of transfer, whether business exists or not in that year.

If the sale proceeds is more than the expenditure incurred to obtain license, then such excess is taxable as Capital Gain under Section 45.

In case of amalgamation or demerger, provisions apply to amalgamated/demerged company as they would applies to amalgamating/demerging company.

One comment

  1. What would be the nature of the Capital Gain? Will it be STCG or LTCG?

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