Amortisation of Amalgamation, VRS, Spectrum and Licence Fee Expenses (Income Tax Act 2025, Section 52)
Section 52 of the Income-tax Act, 2025 lets a business claim four kinds of expenditure in equal yearly instalments instead of all at once: amalgamation or demerger costs, payments to employees under a voluntary retirement scheme (VRS), telecom spectrum fee and telecom licence fee. Amalgamation and VRS costs are spread over five tax years. Spectrum and licence fees are spread over the years the spectrum or licence stays in force.
This guide covers who qualifies, when the first instalment falls, what happens if a licence or spectrum is transferred, and where the Act and the Income-tax Rules, 2026 add conditions. The law is as amended by the Finance Act, 2026, effective 1 April 2026 (tax year 2026-27).
What does section 52 of the Income-tax Act, 2025 cover?
"Amortisation" means writing off a cost over several years. Section 52(1) has a Table with four kinds of expenditure. Each has its own first year and its own number of years.
| Sl. No. | Expenditure | First tax year of deduction | Spread over |
|---|---|---|---|
| 1 | Spent by an Indian company wholly and exclusively for amalgamation or demerger of an undertaking | Tax year in which the amalgamation or demerger takes place | 5 tax years |
| 2 | Paid to an employee in connection with voluntary retirement under any VRS | Tax year in which the payment is made | 5 tax years |
| 3 | Capital expenditure incurred and actually paid to acquire a right to use spectrum for telecom services (spectrum fee) | Later of: the year the business began operating, or the year the fee is actually paid | From the first year to the last tax year for which the spectrum fee paid remains in force |
| 4 | Capital expenditure incurred and actually paid to acquire a right to operate telecom services (licence fee) | Later of: the year the business began operating, or the year the fee is actually paid | From the first year to the last tax year for which the licence fee paid remains in force |
The instalment is "equal": section 52(7)(b) says the numerator is 1 and the denominator is the number of tax years in column D. For five years that is one-fifth (20%) each year.
How is amalgamation or demerger expenditure deducted?
Section 52(1), Table Sl. No. 1 covers expenditure incurred by an Indian company, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking. The first instalment is in the tax year in which the amalgamation or demerger takes place, and the deduction runs over five tax years.
Under section 52(4)(b), no deduction is allowed for this expenditure under any other provision of the Act. So you cannot claim part of it as an ordinary business expense and the rest under section 52.
How is VRS payment deducted?
Table Sl. No. 2 covers an amount paid to an employee in connection with voluntary retirement under any scheme of voluntary retirement. The first instalment falls in the tax year in which the payment is made, and the total is spread over five tax years. The same bar on claiming under any other provision applies (section 52(4)(b)).
Under section 52(7)(a), "actually paid" means actual payment, whatever year the liability arose in under your regular method of accounting. The Table for VRS speaks of the year of payment, so an accrued but unpaid VRS amount does not start the clock.
How are spectrum fee and licence fee deducted?
Table Sl. No. 3 (spectrum) and Sl. No. 4 (licence) cover capital expenditure that is incurred and actually paid. The first year is the later of the year the telecom business began to operate and the year the fee is actually paid. The deduction is then spread equally over the years from that first year to the last tax year for which the spectrum or licence fee paid remains in force.
If you claim and are allowed a deduction under section 52 for these two items, section 52(4)(a) bars depreciation under section 33(1) to (10) on the same expenditure.
What does "actually paid" mean for spectrum on deferred payment?
Rule 41 of the Income-tax Rules, 2026 deals with this for spectrum fee (Sl. No. 3):
- Full upfront payment (opted for and allowed by the Department of Telecommunications): "actually paid" is the actual payment, irrespective of the tax year the liability arose in, according to your regular method of accounting (rule 41(1)(a)).
- Deferred payment (opted for and allowed by the Department of Telecommunications): "actually paid" is the amount that would have been payable had you opted for full upfront payment (rule 41(1)(b)).
So a company that pays in instalments does not wait for each instalment. It looks at the upfront-equivalent amount.
What if the deferred-payment allotment is terminated?
If you fail to comply with the Department of Telecommunications scheme conditions and the Department terminates the allotment or assignment of spectrum, the Assessing Officer recomputes the income for the year in which the deduction was claimed and granted (rule 41(2)). For that recomputation, the spectrum fee paid up to the date of termination is treated as the amount actually paid, and the spectrum is treated as in force only up to the date of termination.
What happens if the spectrum or licence is transferred?
Section 52(2) and (3) deal with a transfer of the licence or spectrum under Sl. No. 3 or 4. The result depends on the capital sum received against the part of the expenditure still unallowed.
| Situation | Result | Section |
|---|---|---|
| Proceeds (capital sums) are less than the expenditure remaining unallowed | Deduction equal to the remaining expenditure minus the proceeds, in the transfer year | 52(2)(a) |
| Proceeds exceed the remaining expenditure | The excess, limited to expenditure incurred minus expenditure remaining unallowed, is taxed as business profits in the transfer year | 52(2)(b) |
| Business no longer exists in the transfer year | Clause (b) applies as if the business existed | 52(2)(c) |
| Proceeds are equal to or more than the remaining expenditure | No deduction under section 52(1) for the transfer year or later years | 52(2)(d) |
| Transfer by an amalgamating or demerged company to an Indian amalgamated or resulting company | Clauses (a) to (d) do not apply to the transferor; section 52 continues for the transferee as if no transfer happened | 52(2)(e) |
| Part transferred, and clauses (b) and (c) do not apply | Remaining expenditure minus proceeds, divided by the relevant tax years not yet expired at the start of the transfer year | 52(3) |
Worked example 1: VRS payment over five years
Assumptions: A company pays Rs 15,00,000 to employees under a VRS in tax year 2026-27. No other provision allows the deduction (section 52(4)(b)).
| Step | Working | Result |
|---|---|---|
| 1. Spread | Table Sl. No. 2: five tax years, starting in the year of payment | 2026-27 to 2030-31 |
| 2. Fraction | 1 / 5 | 20% |
| 3. Annual deduction | Rs 15,00,000 x 1/5 | Rs 3,00,000 |
| 4. Check | Rs 3,00,000 x 5 | Rs 15,00,000 |
Worked example 2: amalgamation expenses
Assumptions: An Indian company spends Rs 8,50,000 on legal, valuation and filing costs wholly and exclusively for an amalgamation that takes effect in tax year 2026-27.
- First tax year is the year the amalgamation takes place: 2026-27.
- Annual instalment: Rs 8,50,000 / 5 = Rs 1,70,000.
- Deduction of Rs 1,70,000 in each of 2026-27, 2027-28, 2028-29, 2029-30 and 2030-31. Total: Rs 8,50,000.
Worked example 3: spectrum fee, then a transfer
Assumptions (illustrative): A telecom company has full upfront payment allowed by the Department of Telecommunications. It pays Rs 60 crore for spectrum in tax year 2026-27, the year its business also begins operating. The spectrum stays in force through the end of tax year 2045-46, which is 20 tax years from 2026-27.
| Step | Working | Result |
|---|---|---|
| 1. Annual deduction | Rs 60 crore / 20 | Rs 3 crore |
| 2. Claimed 2026-27 to 2030-31 | Rs 3 crore x 5 | Rs 15 crore |
| 3. Remaining unallowed at start of 2031-32 | Rs 60 crore - Rs 15 crore | Rs 45 crore |
Case A: whole spectrum sold in 2031-32 for Rs 40 crore (capital sum). Proceeds are less than Rs 45 crore, so section 52(2)(a) gives a deduction of Rs 45 crore - Rs 40 crore = Rs 5 crore in 2031-32.
Case B: whole spectrum sold in 2031-32 for Rs 70 crore. Excess = Rs 70 crore - Rs 45 crore = Rs 25 crore. The cap is expenditure incurred minus expenditure remaining unallowed = Rs 60 crore - Rs 45 crore = Rs 15 crore. Under section 52(2)(b), Rs 15 crore is taxed as business profit in 2031-32. The remaining Rs 10 crore of the excess is not taxed under this clause.
Case C: part sold in 2031-32 for Rs 9 crore, clauses (b) and (c) not applying. Under section 52(3), (Rs 45 crore - Rs 9 crore) = Rs 36 crore, divided by the relevant tax years not expired at the start of 2031-32. Those years are 2031-32 to 2045-46, that is 15 years, so the annual deduction is Rs 36 crore / 15 = Rs 2.4 crore.
Example in plain language: Meena's manufacturing company
Meena runs an Indian company that is merging a small subsidiary into itself. The merger completes in 2026-27. Her accountant asks whether the merger fees can all go to the 2026-27 profit and loss account for tax. They cannot. Under section 52, the amount is deducted over five tax years, and under section 52(4)(b) it cannot also be claimed anywhere else in the Act.
Example in plain language: Ravi and the VRS payments
Ravi's company offers VRS to 20 staff and pays them in March 2027, in tax year 2026-27. Ravi books the full cost as an expense in the year. For tax, he claims one-fifth each year from 2026-27. If the company is later merged into another Indian company before 2030-31, section 52(6) says the successor continues to claim the remaining instalments, and the predecessor gets nothing for the year of the reorganisation.
What if the business is reorganised during the five years?
Section 52(6) applies to VRS expenditure (Sl. No. 2) when a "specified business reorganisation" takes place before the five years are over. Then:
- section 52 continues to apply to the successor entity as it would have applied to the predecessor; and
- the predecessor gets no deduction under section 52 for the tax year in which the reorganisation takes place.
Under section 52(7)(c), a specified business reorganisation means amalgamation of an Indian company and its undertaking with another Indian company; demerger of an undertaking of an Indian company to another company; succession of a firm or proprietorship concern to a company meeting section 70(1)(zd); or conversion of a private or unlisted public company to a limited liability partnership meeting section 70(1)(ze).
What happens if you do not follow the section?
Section 52(5) applies to spectrum fee (Sl. No. 3). If a deduction was claimed and granted and you later fail to comply with any provision of the section:
- the deduction is deemed wrongly allowed;
- the Assessing Officer may recompute the total income of that tax year, irrespective of other provisions;
- section 287 applies as far as may be; and
- the four-year period in section 287(8) is counted from the end of the tax year in which the failure takes place.
Common mistakes
- Claiming the full amount in one year. Sl. No. 1 and 2 items go over five tax years, no matter how they are booked in the accounts.
- Starting a VRS claim on accrual. The first year is the year the payment is made.
- Claiming depreciation on spectrum or licence fee as well. Section 52(4)(a) bars depreciation under section 33(1) to (10) on this expenditure once a section 52 deduction is allowed.
- Missing the "later of" rule. Spectrum and licence fee deductions begin only once the business has started operating and the fee is actually paid.
- Treating deferred spectrum payments as the amount paid each year. Rule 41(1)(b) uses the upfront-equivalent amount.
- Forgetting the successor rule on reorganisation. After an amalgamation or demerger, the remaining instalments move to the successor.
Quick reference
| Item | Years | Starts | Other-provision bar |
|---|---|---|---|
| Amalgamation or demerger cost | 5 | Year of amalgamation or demerger | No claim under any other provision (52(4)(b)) |
| VRS payment | 5 | Year of payment | No claim under any other provision (52(4)(b)) |
| Spectrum fee | Until spectrum fee period ends | Later of business start and actual payment | No section 33(1) to (10) depreciation (52(4)(a)) |
| Licence fee | Until licence fee period ends | Later of business start and actual payment | No section 33(1) to (10) depreciation (52(4)(a)) |
Where this is in the Act
- Section 52(1): Table of expenditure, first year and number of years
- Section 52(2) and (3): transfer of licence or spectrum
- Section 52(4): no depreciation or other claim
- Section 52(5): wrongly allowed deductions and section 287
- Section 52(6): specified business reorganisation during the VRS period
- Section 52(7): "actually paid", "equal instalments", "specified business reorganisation"
- Rule 41 of the Income-tax Rules, 2026: spectrum fee, upfront and deferred payment, termination
- Section 33: depreciation; section 70(1)(zd) and (ze): transfers that are not treated as a transfer for capital gains
For a CA firm, the practical work is a multi-year schedule per client: the amount, the first year and how many instalments remain. Finexo's practice management software can hold these as recurring tasks so a VRS or merger-cost claim is not missed in year three. For a related compliance topic, see TDS on rent under the Income-tax Act, 2025.
This article is general information, not tax advice. Check the current text of the Act and Rules for your facts.
Frequently Asked Questions
Over how many years is VRS expenditure deducted under the Income-tax Act, 2025?
Five tax years in equal instalments, starting with the tax year in which the payment is made (section 52(1), Table Sl. No. 2).
Can amalgamation expenses be claimed in one year?
No. For an Indian company, expenditure wholly and exclusively for amalgamation or demerger is deducted in five equal instalments from the year of amalgamation or demerger (Table Sl. No. 1).
When does the deduction for spectrum or licence fee start?
In the later of the tax year the telecom business began to operate and the tax year the fee is actually paid. It then runs to the last tax year the spectrum or licence fee paid stays in force.
Can I claim depreciation on spectrum fee as well as section 52?
No. Where a section 52 deduction is claimed and allowed, section 52(4)(a) bars depreciation under section 33(1) to (10) on the same spectrum or licence fee expenditure.
What does 'actually paid' mean for deferred spectrum payment?
Under rule 41(1)(b), it is the amount that would have been payable had the assessee opted for full upfront payment, where the Department of Telecommunications allowed deferred payment.
Who claims the remaining VRS instalments after a merger?
The successor entity. Under section 52(6), section 52 continues for the successor, and the predecessor gets no deduction for the year of the reorganisation.