India’s private sector capital expenditure (capex) could face delays due to rising import tariffs. This blog breaks down the tax treatment of capex, deferred planning strategies, and key GST, customs, and income tax angles relevant for FY 2025–26.
Capital Expenditure Slowdown: What’s the Buzz?
According to Goldman Sachs, India’s private sector capex is expected to slow down due to rising import tariffs and economic uncertainty. With companies deferring new projects, this impacts both tax planning and compliance across GST, customs duties, and income tax regimes.
Let’s simplify what this means for Indian businesses and how Efiletax can guide your capex-related tax compliance in FY 2025–26.
What is Capital Expenditure (Capex)?
Capex refers to long-term investments like:
- Plant & machinery purchases
- IT infrastructure and factory setups
- Office buildings, R&D labs
- New project expansions
These are not deducted in full in the year of purchase but claimed over time via depreciation under Income Tax Act.
Why Capex Delays Affect Tax Planning
When capex gets delayed, it affects:
- Depreciation claims under Section 32
- Input Tax Credit (ITC) eligibility under GST
- Customs duty and safeguard duty outflows
- Project cost accounting & break-even timelines
Companies must adjust projections in:
- ITR filings (FY 2025–26)
- GST return disclosures (GSTR-3B & GSTR-9)
- MCA filings, especially in Form AOC-4
Tax Treatment of Capex in India
| Tax Law | Provision | Impact on Capex |
|---|---|---|
| Income Tax | Section 32 | Depreciation over asset life (Not immediate deduction) |
| GST | Section 16 CGST Act | ITC allowed only if used for business & not blocked u/s 17(5) |
| Customs | Notification No. 01/2025-Cus (SG) | Higher safeguard duties raise import costs |
| Companies Act | Schedule III | Capex classified under Fixed Assets; impacts cash flow reports |
Tariff Impact: Customs + GST Compliance
Recent notifications such as Notification No. 01/2025-Cus (SG) impose safeguard duties on alloy steel flat products—commonly used in industrial capex.
This increases landed cost and may:
- Discourage import-heavy projects
- Require project cost restructuring
- Push firms to explore Make-in-India alternatives
Expert View: “Capex-heavy industries should run a landed cost analysis including GST ITC loss before deferring projects,” says a Chennai-based tax consultant.
How to Plan Capex in FY 2025–26
Before investing:
- Conduct GST input planning: ITC loss on blocked credits under Sec 17(5)
- Forecast depreciation impacts on profitability
- Explore Capex deduction u/s 35AD if applicable (for specified businesses)
- Use safe harbor rules to avoid aggressive depreciation claims
If deferring capex:
- Adjust provisional financials in MCA filings
- Recalculate MAT/AMT liability if depreciation reduces book profits
- Monitor notification-based tariff changes every quarter