The semiconductor industry is a strategic priority for India, and Section 46 of the Income Tax Act, 2025 provides a significant incentive for semiconductor wafer fabrication units. Rule 36 of the Income Tax Rules, 2026 lays down detailed eligibility conditions and application procedures for semiconductor wafer fabrication units to be notified as specified businesses under Section 46(11)(d)(xiii).
The Scope of the Deduction
An assessee, at his option, is allowed a deduction of the whole of the capital expenditure incurred, wholly and exclusively, for the purposes of a semiconductor wafer fabrication manufacturing unit during the tax year in which such expenditure is incurred.
Eligibility Conditions
A semiconductor wafer fabrication manufacturing unit is considered for notification under Section 46(11)(d)(xiii) if it fulfils all of the following conditions:
Exclusive Manufacturing
The unit must be exclusively for the manufacture of semiconductor wafer fabrications. This means the unit cannot be used for any other manufacturing activity.
Prior Approval
The unit must have prior approval of the competent authority on the recommendations of the Appraisal Committee under the Modified Special Incentive Package Scheme notified by the Department of Electronics and Information Technology, Ministry of Communications and Information Technology, Government of India.
Commencement Date
The date of commencement of operations, being the date on which the commercial production of the unit commences, must be on or after 1 April 2014.
Location
The unit may have one or more manufacturing facilities, but all the facilities shall be located in India.
Definition of Semiconductor Wafer Fabrications
"Semiconductor wafer fabrications" means integrated circuits which are covered in the National Industrial Classification, 2008 under Division 26; Group 261; Class 2610; Sub-class 26103.
Application Process
Form 19 Filing
The application for notification must be filed in Form No. 19 with the Member (IT), Central Board of Direct Taxes.
Deficiency Rectification
If any defect is noticed in the application, a deficiency letter is served on the applicant. The applicant must remove the deficiency within one month from the end of the month in which such deficiency letter is served.
Approval or Rejection
The Board may issue the notification granting approval to the unit or reject the application after recording the reasons for rejection in writing.
Withdrawal of Approval
The Board may withdraw approval in respect of a unit if it is satisfied that:
- The assessee has ceased its activities relating to the specified business
- Such activities are not genuine or are not being carried out in accordance with all or any of the conditions
- The approval granted by the competent authority on the recommendations of the Appraisal Committee under the Modified Special Incentive Package Scheme has been withdrawn
Compliance Requirements
Separate Books of Account
The applicant must maintain separate books of account with complete details of all capital expenditure incurred during the tax year for which it intends to claim the deduction.
Timely Return Filing
Relevant income-tax returns must be filed by the due date to avail the tax benefit.
Opportunity of Being Heard
An opportunity of being heard shall be given to the applicant if an order invalidating or rejecting the application or withdrawing the approval or cancellation of the notification is to be passed.
Expert Legal Guidance
Understanding the eligibility conditions and application process for semiconductor wafer fabrication deduction is essential for companies in the semiconductor industry. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping semiconductor manufacturers navigate the approval process and ensure compliance with all conditions.