Section 35ABA of the Income Tax Act, 1961- Deduction for Spectrum Fee in Telecommunication

Section 35ABA of the Income Tax Act, 1961- Deduction for Spectrum Fee in Telecommunication. Section 35ABA of the Income Tax Act, 1961 is a special provision introduced by the Finance Act, 2016, effective from April 1, 2017. This section provides a structured mechanism for telecom operators to claim tax deductions on the capital expenditure incurred to acquire the right to use spectrum for telecommunication services. This article provides a detailed explanation of every provision under Section 35ABA of the Income Tax Act, 1961, along with its applicability, deduction mechanism, compliance requirements, and global comparisons.
What is a Section 35ABA of the Income Tax Act, 1961?
Section 35ABA of the Income Tax Act, 1961 applies to telecom operators that incur capital expenditure for acquiring spectrum rights. These rights allow the operator to use a specific frequency range for providing telecommunication services. Spectrum is an essential but limited resource managed by the government. Operators acquire it through auctions or direct allotment by paying substantial amounts.
This provision allows the taxpayer to claim deductions for the capital cost involved in such acquisition over a specified period, rather than claiming the entire amount in one financial year. This ensures tax relief is provided over the actual duration of use.
Applicability of Section 35ABA
Section 35ABA of the Income Tax Act, 1961 applies to any capital expenditure made to acquire the right to use spectrum for telecommunication services. It is applicable irrespective of whether the expenditure is incurred before or after the commencement of business. However, actual payment for acquiring the spectrum is a necessary condition. This means the section covers situations where spectrum rights are acquired:

Before starting the telecommunication business

During the operation of the business

In both cases, deductions will be allowed as per the rules laid out in this section.
Capital Expenditure for Spectrum Rights
The nature of the expense under this section must be capital expenditure. Capital expenditure typically refers to expenses incurred for acquiring or improving long-term assets. In this context, it refers to the upfront payment made to the government to obtain spectrum rights, which grants exclusive usage rights for a specific duration. It is important to distinguish capital expenditure from revenue expenditure. The cost of acquiring spectrum is considered a long-term investment and hence classified as capital expenditure. This classification is important because only capital expenditures are eligible for deduction under Section 35ABA of the Income Tax Act, 1961.
Deduction Mechanism: Understanding the Appropriate Fraction
The deduction under Section 35ABA is not a lump sum deduction in one year. Instead, it is evenly spread across the relevant previous years. The deduction amount for each year is calculated using an "appropriate fraction."
The appropriate fraction means:

Numerator = 1

Denominator = Total number of relevant previous years

For example, if the spectrum is valid for 20 years, the deduction will be 1/20th of the total spectrum expenditure each year. This method ensures that the benefit of deduction is evenly distributed across the useful life of the spectrum license.
Relevant Previous Years Explained
The term "relevant previous years" is defined in the Explanation to Section 35ABA of the Income Tax Act, 1961. These years differ based on when the spectrum fee is paid:

If spectrum fee is paid before business commencement: The relevant previous years will begin from the year in which the business starts operating.

If spectrum fee is paid after business commencement: The relevant previous years will begin from the year in which the payment was actually made.

The deduction continues for every year the spectrum is in force. So, the number of relevant previous years is equal to the validity period of the spectrum license.
Definition of Actual Payment Made
Section 35ABA highlights the actual payment of the spectrum fee, regardless of the accounting method used. According to the explanation in the section:

"Payment has actually been made" means the actual disbursement of funds for the expenditure.

It is irrelevant in which year the liability to pay arose.

This ensures that taxpayers can only claim deduction once payment has been made, not just when the expense is booked in the accounts.
Incorporation of Provisions from Section 35ABB
Sub-section (2) of Section 35ABA of the Income Tax Act, 1961 adopts the provisions of sub-sections (2) to (8) of Section 35ABB. The word "licence" in Section 35ABB is replaced with the word "spectrum" for the purposes of Section 35ABA. Section 35ABB deals with license fees paid to operate telecommunication services. By incorporating these provisions, Section 35ABA brings consistency and simplifies the treatment of both spectrum and license fees. This alignment ensures smooth compliance and logical deduction framework.
Consequences of Non-Compliance
If an assessee claims a deduction under Section 35ABA and later fails to comply with its provisions, the law imposes the following consequences:

The deduction will be treated as wrongly allowed.

The Assessing Officer (AO) will re-compute the total income of that previous year.

Rectification will be made under Section 154 of the Income Tax Act.

The 4-year time limit for rectification will be calculated from the end of the previous year in which the failure occurred.

These provisions emphasize the importance of adhering to compliance norms while claiming deductions under this section.
Practical Examples and Case Scenarios
Let us understand how Section 35ABA of the Income Tax Act, 1961 operates through two common scenarios:
Scenario 1: Spectrum Fee Paid Before Business Start
 ABC Telecom Ltd. paid Rs. 200 crore for acquiring spectrum in FY 2024-25. The business commenced in FY 2025-26, and the spectrum license is valid for 20 years.
Under Section 35ABA:

Relevant previous years = FY 2025-26 to FY 2044-45

Deduction each year = Rs. 10 crore (200/20)

Scenario 2: Spectrum Fee Paid During Business
 XYZ Networks was already in business. In FY 2025-26, it paid Rs. 100 crore for new spectrum rights valid for 10 years.
Under Section 35ABA:

Relevant previous years = FY 2025-26 to FY 2034-35

Deduction each year = Rs. 10 crore

In both scenarios, deductions follow a straight-line method using the appropriate fraction.
Importance of Spectrum in Telecom Services
To know the relevance of Section 35ABA of the Income Tax Act, 1961, one must grasp the strategic value of spectrum. Spectrum is a limited natural resource that is critical for mobile communication, broadband, satellite communication, and emerging technologies like 5G. As the telecom sector evolves, the need for efficient spectrum management becomes important. Operators invest significant capital in acquiring spectrum, making it necessary for tax laws to support such investments by offering equitable deductions.
Section 35ABA as a Growth Enabler
By providing systematic tax deductions, Section 35ABA of the Income Tax Act, 1961 helps reduce the tax burden for telecom operators. This provision ensures that companies can focus their resources on innovation and infrastructure expansion. In doing so, the section plays an important role in enabling digital growth and bridging the connectivity gap across India. It supports the government’s Digital India mission by incentivizing investments in telecom infrastructure.
Compliance Measures and Business Responsibility
Telecom operators must ensure full compliance while claiming deductions under Section 35ABA. Failure to adhere can result in tax penalties, re-computation of income, and disallowance of deductions.
To avoid such issues:

Maintain detailed documentation of spectrum payments.

Ensure timely payments as per government auction terms.

Track the number of relevant previous years accurately.

Apply the correct appropriate fraction.

A strong internal compliance framework will help companies remain on the right side of tax regulations.
Global Practices in Spectrum Taxation
Across the world, countries adopt varying models to manage and tax spectrum usage:
United States
Spectrum fees are capitalized and amortized over the useful life of the spectrum. The FCC conducts auctions and encourages innovation through a supportive tax framework.
European Union
EU nations follow mixed models. Some charge upfront fees, others impose annual fees. Tax incentives are also extended for digital infrastructure investments.
Asia-Pacific
Countries like Australia and Japan focus on affordability and balanced taxation. Tax deductions and reduced spectrum fees are provided to foster competition.
By analyzing these global trends, it becomes evident that Section 35ABA of the Income Tax Act, 1961 aligns well with international standards while addressing India’s domestic needs.
Future Considerations and Policy Evolution
As the telecom sector expands into technologies like 6G, IoT, and satellite internet, the nature of spectrum usage will also evolve. Policymakers must ensure that Section 35ABA of the Income Tax Act, 1961 remains flexible to accommodate such technological shifts.
Future considerations may include:

Extending deductions to hybrid usage models

Incentivizing eco-friendly telecom operations

Including spectrum-related software and hardware investments under eligible deductions

Conclusion
Section 35ABA of the Income Tax Act, 1961 is a progressive tax provision that facilitates long-term investments in spectrum by providing phased deductions for capital expenditure. It supports growth, encourages innovation, and ensures that the tax system aligns with industry realities. With rising demand for mobile and broadband services, the need for continuous spectrum acquisition is growing. By offering predictable and structured tax relief, Section 35ABA promotes a financially stable and competitive telecom industry in India. Proper implementation and regular policy review will ensure that this provision remains a powerful tool for enabling digital transformation.
If you have any queries or need assistance, please contact with Compliance Calendar experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs 
Q1. What is Section 35ABA of the Income Tax Act, 1961?
Ans. Section 35ABA provides tax deduction to telecommunication companies for any expenditure incurred on acquiring the right to use spectrum. This deduction allows such expenditure to be claimed over the period of the license or the right to use spectrum, aligning tax benefits with actual usage. 
Q2. Who is eligible to claim deduction under Section 35ABA?
Ans. Only Indian telecommunication operators who have incurred expenditure for acquiring the right to use spectrum—typically through auctions or direct allotment—are eligible to claim this deduction under Section 35ABA of the Income Tax Act. 
Q3. How is the deduction under Section 35ABA calculated?
Ans. The total amount paid for the spectrum rights is amortized evenly over the period for which the spectrum is granted. For example, if the spectrum is allotted for 20 years, the deduction each year would be 1/20th of the total expenditure. 
Q4. Can the deduction under Section 35ABA be claimed for spectrum fees paid in installments?
Ans. Yes, even if the payment for spectrum rights is made in installments, the deduction is allowed on the entire liability incurred, provided the liability is recognized as per the accrual system of accounting and is not disputed. 
Q5. What happens to the deduction under Section 35ABA if the spectrum rights are sold or transferred?
Ans. If the spectrum rights are sold or transferred, the deduction under Section 35ABA stops from the year of transfer. Any profit or loss from the transfer is dealt with under the provisions of capital gains or business income, as applicable. 
Q6. Is Section 35ABA applicable to spectrum usage charges (SUC)?
Ans. No, Section 35ABA applies only to the one-time payment made for acquiring the right to use spectrum (usually through auction). Recurring payments like Spectrum Usage Charges (SUC) are treated as revenue expenses and are deductible under normal business expense provisions, not under Section 35ABA. 
Q7. What is the difference between Section 35ABB and Section 35ABA of the Income Tax Act?
Ans. Section 35ABB applied to license fees paid for telecom services before the introduction of spectrum auctions. Section 35ABA was introduced with effect from April 1, 2016, to address the deduction of spectrum acquisition costs under the auction regime, replacing Section 35ABB for newer transactions.

Section 35ABA of the Income Tax Act, 1961 is a special provision introduced by the Finance Act, 2016, effective from April 1, 2017. This section provides a structured mechanism for telecom operators to claim tax deductions on the capital expenditure incurred to acquire the right to use spectrum for telecommunication services. This article provides a detailed explanation of every provision under Section 35ABA of the Income Tax Act, 1961, along with its applicability, deduction mechanism, compliance requirements, and global comparisons.

What is a Section 35ABA of the Income Tax Act, 1961?

Section 35ABA of the Income Tax Act, 1961 applies to telecom operators that incur capital expenditure for acquiring spectrum rights. These rights allow the operator to use a specific frequency range for providing telecommunication services. Spectrum is an essential but limited resource managed by the government. Operators acquire it through auctions or direct allotment by paying substantial amounts.

This provision allows the taxpayer to claim deductions for the capital cost involved in such acquisition over a specified period, rather than claiming the entire amount in one financial year. This ensures tax relief is provided over the actual duration of use.

Applicability of Section 35ABA

Section 35ABA of the Income Tax Act, 1961 applies to any capital expenditure made to acquire the right to use spectrum for telecommunication services. It is applicable irrespective of whether the expenditure is incurred before or after the commencement of business. However, actual payment for acquiring the spectrum is a necessary condition. This means the section covers situations where spectrum rights are acquired:

Before starting the telecommunication business
During the operation of the business

In both cases, deductions will be allowed as per the rules laid out in this section.

Capital Expenditure for Spectrum Rights

The nature of the expense under this section must be capital expenditure. Capital expenditure typically refers to expenses incurred for acquiring or improving long-term assets. In this context, it refers to the upfront payment made to the government to obtain spectrum rights, which grants exclusive usage rights for a specific duration. It is important to distinguish capital expenditure from revenue expenditure. The cost of acquiring spectrum is considered a long-term investment and hence classified as capital expenditure. This classification is important because only capital expenditures are eligible for deduction under Section 35ABA of the Income Tax Act, 1961.

Deduction Mechanism: Understanding the Appropriate Fraction

The deduction under Section 35ABA is not a lump sum deduction in one year. Instead, it is evenly spread across the relevant previous years. The deduction amount for each year is calculated using an "appropriate fraction."

The appropriate fraction means:

Numerator = 1
Denominator = Total number of relevant previous years

Relevant Previous Years Explained

The term "relevant previous years" is defined in the Explanation to Section 35ABA of the Income Tax Act, 1961. These years differ based on when the spectrum fee is paid:

If spectrum fee is paid before business commencement: The relevant previous years will begin from the year in which the business starts operating.
If spectrum fee is paid after business commencement: The relevant previous years will begin from the year in which the payment was actually made.

The deduction continues for every year the spectrum is in force. So, the number of relevant previous years is equal to the validity period of the spectrum license.

Definition of Actual Payment Made

Section 35ABA highlights the actual payment of the spectrum fee, regardless of the accounting method used. According to the explanation in the section:

"Payment has actually been made" means the actual disbursement of funds for the expenditure.
It is irrelevant in which year the liability to pay arose.

This ensures that taxpayers can only claim deduction once payment has been made, not just when the expense is booked in the accounts.

Incorporation of Provisions from Section 35ABB

Sub-section (2) of Section 35ABA of the Income Tax Act, 1961 adopts the provisions of sub-sections (2) to (8) of Section 35ABB. The word "licence" in Section 35ABB is replaced with the word "spectrum" for the purposes of Section 35ABA. Section 35ABB deals with license fees paid to operate telecommunication services. By incorporating these provisions, Section 35ABA brings consistency and simplifies the treatment of both spectrum and license fees. This alignment ensures smooth compliance and logical deduction framework.

Consequences of Non-Compliance

If an assessee claims a deduction under Section 35ABA and later fails to comply with its provisions, the law imposes the following consequences:

The deduction will be treated as wrongly allowed.
The Assessing Officer (AO) will re-compute the total income of that previous year.
Rectification will be made under Section 154 of the Income Tax Act.
The 4-year time limit for rectification will be calculated from the end of the previous year in which the failure occurred.

These provisions emphasize the importance of adhering to compliance norms while claiming deductions under this section.

Practical Examples and Case Scenarios

Let us understand how Section 35ABA of the Income Tax Act, 1961 operates through two common scenarios:

Scenario 1: Spectrum Fee Paid Before Business Start

ABC Telecom Ltd. paid Rs. 200 crore for acquiring spectrum in FY 2024-25. The business commenced in FY 2025-26, and the spectrum license is valid for 20 years.

Under Section 35ABA:

Relevant previous years = FY 2025-26 to FY 2044-45
Deduction each year = Rs. 10 crore (200/20)

Scenario 2: Spectrum Fee Paid During Business

XYZ Networks was already in business. In FY 2025-26, it paid Rs. 100 crore for new spectrum rights valid for 10 years.

Under Section 35ABA:

Relevant previous years = FY 2025-26 to FY 2034-35
Deduction each year = Rs. 10 crore

In both scenarios, deductions follow a straight-line method using the appropriate fraction.

Importance of Spectrum in Telecom Services

To know the relevance of Section 35ABA of the Income Tax Act, 1961, one must grasp the strategic value of spectrum. Spectrum is a limited natural resource that is critical for mobile communication, broadband, satellite communication, and emerging technologies like 5G. As the telecom sector evolves, the need for efficient spectrum management becomes important. Operators invest significant capital in acquiring spectrum, making it necessary for tax laws to support such investments by offering equitable deductions.

Section 35ABA as a Growth Enabler

By providing systematic tax deductions, Section 35ABA of the Income Tax Act, 1961 helps reduce the tax burden for telecom operators. This provision ensures that companies can focus their resources on innovation and infrastructure expansion. In doing so, the section plays an important role in enabling digital growth and bridging the connectivity gap across India. It supports the government’s Digital India mission by incentivizing investments in telecom infrastructure.

Compliance Measures and Business Responsibility

Telecom operators must ensure full compliance while claiming deductions under Section 35ABA. Failure to adhere can result in tax penalties, re-computation of income, and disallowance of deductions.

To avoid such issues:

Maintain detailed documentation of spectrum payments.
Ensure timely payments as per government auction terms.
Track the number of relevant previous years accurately.
Apply the correct appropriate fraction.

A strong internal compliance framework will help companies remain on the right side of tax regulations.

Global Practices in Spectrum Taxation

Across the world, countries adopt varying models to manage and tax spectrum usage:

United States

Spectrum fees are capitalized and amortized over the useful life of the spectrum. The FCC conducts auctions and encourages innovation through a supportive tax framework.

European Union

EU nations follow mixed models. Some charge upfront fees, others impose annual fees. Tax incentives are also extended for digital infrastructure investments.

Asia-Pacific

Countries like Australia and Japan focus on affordability and balanced taxation. Tax deductions and reduced spectrum fees are provided to foster competition.

By analyzing these global trends, it becomes evident that Section 35ABA of the Income Tax Act, 1961 aligns well with international standards while addressing India’s domestic needs.

Future Considerations and Policy Evolution

As the telecom sector expands into technologies like 6G, IoT, and satellite internet, the nature of spectrum usage will also evolve. Policymakers must ensure that Section 35ABA of the Income Tax Act, 1961 remains flexible to accommodate such technological shifts.

Future considerations may include:

Extending deductions to hybrid usage models
Incentivizing eco-friendly telecom operations
Including spectrum-related software and hardware investments under eligible deductions

Conclusion

Section 35ABA of the Income Tax Act, 1961 is a progressive tax provision that facilitates long-term investments in spectrum by providing phased deductions for capital expenditure. It supports growth, encourages innovation, and ensures that the tax system aligns with industry realities. With rising demand for mobile and broadband services, the need for continuous spectrum acquisition is growing. By offering predictable and structured tax relief, Section 35ABA promotes a financially stable and competitive telecom industry in India. Proper implementation and regular policy review will ensure that this provision remains a powerful tool for enabling digital transformation.

If you have any queries or need assistance, please contact with Compliance Calendar experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is Section 35ABA of the Income Tax Act, 1961?

Ans. Section 35ABA provides tax deduction to telecommunication companies for any expenditure incurred on acquiring the right to use spectrum. This deduction allows such expenditure to be claimed over the period of the license or the right to use spectrum, aligning tax benefits with actual usage.

Q2. Who is eligible to claim deduction under Section 35ABA?

Ans. Only Indian telecommunication operators who have incurred expenditure for acquiring the right to use spectrum—typically through auctions or direct allotment—are eligible to claim this deduction under Section 35ABA of the Income Tax Act.

Q3. How is the deduction under Section 35ABA calculated?

Ans. The total amount paid for the spectrum rights is amortized evenly over the period for which the spectrum is granted. For example, if the spectrum is allotted for 20 years, the deduction each year would be 1/20th of the total expenditure.

Q4. Can the deduction under Section 35ABA be claimed for spectrum fees paid in installments?

Ans. Yes, even if the payment for spectrum rights is made in installments, the deduction is allowed on the entire liability incurred, provided the liability is recognized as per the accrual system of accounting and is not disputed.

Q5. What happens to the deduction under Section 35ABA if the spectrum rights are sold or transferred?

Ans. If the spectrum rights are sold or transferred, the deduction under Section 35ABA stops from the year of transfer. Any profit or loss from the transfer is dealt with under the provisions of capital gains or business income, as applicable.

Q6. Is Section 35ABA applicable to spectrum usage charges (SUC)?

Ans. No, Section 35ABA applies only to the one-time payment made for acquiring the right to use spectrum (usually through auction). Recurring payments like Spectrum Usage Charges (SUC) are treated as revenue expenses and are deductible under normal business expense provisions, not under Section 35ABA.

Q7. What is the difference between Section 35ABB and Section 35ABA of the Income Tax Act?

Ans. Section 35ABB applied to license fees paid for telecom services before the introduction of spectrum auctions. Section 35ABA was introduced with effect from April 1, 2016, to address the deduction of spectrum acquisition costs under the auction regime, replacing Section 35ABB for newer transactions.