Draft Income-Tax Rules, 2026, Define Infrastructure Facility Deductions Under Section 32(e)

(INDIA) — India’s draft tax rules set out conditions that public facilities must meet to qualify as an “infrastructure facility” under section 32(e) of the Income-tax Act, 2025, a move designed to enable depreciation deductions for eligible assets used in such projects.

Rule 24 of the Draft Income-tax Rules, 2026 defines the criteria for notification as an infrastructure facility and applies from April 1, 2026 under the new Income-tax Act, 2025.

The draft rule sets out three mandatory conditions covering ownership, the presence of a government or statutory agreement for the project, and a requirement tied to when operations and maintenance started.

Rule 24’s ownership condition requires that a facility be owned by a company registered in India, a consortium of such companies, or an authority, board, corporation or other body established or constituted under any Central or State Act.

The agreement condition requires that the owner enter into an agreement with the Central Government, a State Government, a local authority, or any other statutory body, with the agreement covering developing, operating and maintaining, or developing, operating and maintaining a new infrastructure facility.

The draft also sets an operational commencement threshold, requiring that the facility must have started or starts operating and maintaining such infrastructure on or after April 1, 1995.

In the draft, the agreement condition links eligible projects to infrastructure facilities “similar in nature” to those referred to in the Explanation to section 80-IA(4)(i) of the Income-tax Act, 1961, tying the new rule to an earlier statutory reference point for what qualifies as infrastructure.

The exact text of the draft provision appears in Rule 24, which sets out the full set of conditions for a public facility to be eligible for notification as an infrastructure facility under section 32(e) of the Income-tax Act, 2025:

Rule 24
Infrastructure facility under section 32(e) of the Act
Following conditions shall be fulfilled by a public facility to be eligible to be notified as an infrastructure facility as provided in section 32(e) of the Act:—
(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for —
(i) developing; or
(ii) operating and maintaining or;
(iii) developing, operating and maintaining a new infrastructure facility similar in nature to an infrastructure facility referred to in the Explanation to section 80-IA (4)(i) of the Income Tax Act, 1961

(c) it has started or starts operating and maintaining such infrastructure facility on or after the 1st day of April, 1995.[3]

The draft rules sit within a broader framework in the Income-tax Act, 2025 that allows depreciation deductions under section 32(e) on tangible assets used in eligible infrastructure facilities.

Section 32(e) allows depreciation deductions on tangible assets like buildings, machinery, plant, or furniture used in eligible infrastructure facilities, aligning that treatment with wider rules that apply to business asset depreciation.

The draft material cites normal depreciation rates of 10-40% for buildings and 15-40% for plant/machinery/computers/vehicles as examples of the rates associated with business asset depreciation.

By connecting the draft’s eligibility conditions to infrastructure facilities referred to in the Explanation to section 80-IA(4)(i) of the Income-tax Act, 1961, the definition framework points to a set of public works and services that have long featured in India’s tax treatment of infrastructure.

The cross-referenced list includes roads, highways, bridges, airports, ports, rail systems, water supply, sanitation, or similar public facilities notified by the Board.

Under the approach in the draft, Rule 24 provides a gatekeeping mechanism for notification: a facility must meet the ownership structure requirement, have the specified type of agreement with the Central Government, a State Government, a local authority, or another statutory body, and satisfy the April 1, 1995 operational commencement criterion.

The agreement provision also sets out three modes of participation—developing, operating and maintaining, or developing, operating and maintaining—which can cover different models used for delivering infrastructure, as long as they involve a “new infrastructure facility” aligned with the statutory reference.

The broader section 32(e) framework also touches entities involved in financing infrastructure.

Specified entities, including infrastructure capital companies and infrastructure capital funds, that provide long-term finance for such facilities may also claim related deductions, linking the depreciation eligibility framework to how projects are funded over long horizons.

Taken together, the Draft Income-tax Rules, 2026 and the Income-tax Act, 2025 framework aim to set clearer parameters around what qualifies as an infrastructure facility for the purpose of depreciation on eligible assets used in such facilities.

The draft rules are open for public feedback to ensure practicality, as the framework also emphasizes streamlined compliance and alignment with digital tax systems effective FY 2026-27.

The timeline is central to how the draft is framed: Rule 24 applies from April 1, 2026, and the compliance framework it sits within is described as aligning with digital tax systems effective FY 2026-27.

The draft’s conditions, in turn, focus on features that can be assessed when considering notification, including whether the facility’s ownership fits one of the listed categories and whether the required agreement exists with one of the specified tiers of government or another statutory body.

For developers and operators, the draft’s reference to assets used in eligible infrastructure facilities links qualification to the ability to claim depreciation deductions on tangible assets such as buildings, machinery, plant, or furniture used in those facilities, connecting the infrastructure definition to standard asset categories used in business operations.

The cross-referenced infrastructure categories—from roads and highways through water supply and sanitation—also underscore the breadth of public works that may fall under the concept of an infrastructure facility when the conditions for notification are met.

In the draft language, the operational commencement condition reaches back to projects operating and maintaining such infrastructure on or after the 1st day of April, 1995, creating a date-based criterion that sits alongside the ownership and agreement requirements.

The draft text also makes clear that an agreement can cover developing alone, operating and maintaining alone, or the combination of developing, operating and maintaining, as long as it relates to a new infrastructure facility within the referenced scope.

With public feedback invited, the consultation process is positioned as a way to test whether the conditions in Draft Income-tax Rules, 2026—particularly the ownership structures, agreement counterparts, and operational date threshold—work in practice across the range of facilities that may seek notification as an infrastructure facility under section 32(e).