Clause 24 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 24 reports amounts deemed to be profits and gains under sections 32AC, 32AD, 33AB, 33ABA and 33AC — the clawbacks that follow when an investment allowance asset is transferred, or a deposit or reserve is used for something other than its purpose.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. Several of these provisions are historic — the deduction windows have closed — but the clawback can still arise in a current year. For tax years under the Income-tax Act, 2025 the corresponding provisions must be identified afresh, and the particulars move to Form No. 26 under rule 47 of the Income-tax Rules, 2026.
Why a closed deduction still generates a current-year charge
Each of these five sections gave a deduction on a condition — that an asset be retained, or a deposit or reserve be used only for a stated purpose. When the condition later fails, the section deems an amount to be profits and gains of business in that later year. So clause 24 can carry a figure long after the deduction itself became unavailable, and the auditor's enquiry is about events in the year under audit, not about the original claim.
Section 32AC — investment in new plant and machinery
Paragraph 44.1: section 32AC allowed a deduction at 15% in respect of investment in new plant and machinery by a company engaged in the business of manufacture or production of any article or thing, which acquires and installs new assets after 31 March 2013 but before 1 April 2015, where the aggregate actual cost of such new assets exceeds Rs 100 crore.
The tax auditor is required to verify the deemed income chargeable as profits and gains of business under the circumstances specified in sub-section (2), and to verify compliance with the conditions of the section. No deduction under section 32AC(1A) shall be allowed for any assessment year commencing on or after 1 April 2018.
Paragraph 44.1 makes a point that saves double reporting: only because section 32AC(2) provides for chargeability of deemed income under profits and gains of business in addition to taxability of capital gains, any capital gains or losses arising on transfer of the said asset is not required to be reported under this clause. Clause 24 carries the deemed business income; the capital gains consequence belongs to the computation, not to this particular.
Section 32AD — new plant in notified backward areas
Paragraph 44.2: section 32AD allowed a deduction for investment in new plant or machinery in notified backward areas in the States of Andhra Pradesh, Bihar, Telangana or West Bengal, where an assessee sets up an undertaking or enterprise for manufacture or production of any article or thing on or after 1 April 2015 and acquires and installs any new asset for that undertaking during the period beginning 1 April 2015 and ending before 1 April 2020 in the notified backward area.
The deduction allowed was 15% of the actual cost of the new asset, for the assessment year relevant to the previous year in which the asset is installed. The deemed income chargeable as profits and gains of business under the circumstances specified in sub-section (2) has to be reported at clause 24.
Sections 33AB and 33ABA — the deposit clawbacks
| Section | Deduction it allowed | Clawback sub-sections to verify |
|---|---|---|
| 33AB | Tea Development Account, Coffee Development Account and Rubber Development Account | (4), (5), (7) and (8) |
| 33ABA | Site Restoration Fund | (5), (7) and (8) |
Paragraph 44.4 adds a specific trigger for section 33ABA: where deduction has been claimed with respect to interest credited in the Special Account or the Site Restoration Account, utilisation of the withdrawal thereof for purposes other than those specified shall be deemed to be income from business.
That connects directly to the deduction side of the same section: interest credited to the account is deemed to be a deposit and so attracts the deduction; misuse of the withdrawal then reverses it as deemed income. Both halves are reportable in the same audit — the deduction at clause 19, the clawback at clause 24.
Section 33AC — the shipping reserve
Paragraph 44.5: section 33AC allowed a deduction in respect of a reserve created out of the profits of an assessee engaged in shipping business, to be utilised in accordance with sub-section (2). The deemed income chargeable as profits and gains of business under sub-sections (3) and (4), for the amount of reserves created on or before 31 March 2004, has to be reported.
The 31 March 2004 cut-off is the historic boundary of the reserve creation; the reserves themselves, and therefore the possibility of a misutilisation charge, can persist well beyond it.
What the auditor examines
For each of the five sections the pattern is the same, and paragraph 44.6 collects it into a single working paper of section · description · amount · remarks, with a note that the remarks column can mention the reference of the transaction or transactions resulting into income.
Practically, that means:
- Identify whether any deduction was ever claimed under these sections — from earlier years' returns and audit reports, not from this year's ledger.
- Identify the events of this year — transfer, sale, or a withdrawal or utilisation from the special account, deposit account or reserve.
- Apply the section's own clawback sub-sections to compute the deemed amount.
- Record the transaction reference in the remarks, so the figure can be traced.
Worked example
| Event in the year under audit | Section | Clause 24 |
|---|---|---|
| Plant on which a 15% section 32AC deduction was claimed in A.Y. 2015-16 is sold | 32AC(2) | Deemed business income reported; the capital gain is not reported here |
| Backward-area machinery on which section 32AD was claimed is transferred | 32AD(2) | Deemed business income reported |
| Withdrawal from the NABARD special account used for a purpose outside the approved scheme | 33AB(7) / (8) | Reported |
| Interest-derived withdrawal from the Site Restoration Account applied to general working capital | 33ABA | Reported — utilisation for a purpose other than specified |
| Shipping reserve created in 2003 utilised otherwise than under section 33AC(2) | 33AC(3) / (4) | Reported |
| No deduction was ever claimed under any of these sections | — | Nil |
Audit checklist
- Establish from earlier years' returns and reports whether any of these deductions was ever claimed.
- Test this year's transfers, withdrawals and utilisations against each section's clawback sub-sections.
- Confirm the section 33ABA position where interest credited was itself claimed as a deposit.
- Report the deemed business income only — leave capital gains to the computation.
- Record the transaction reference in the remarks column.
- Remember section 32AC(1A) gives no deduction from A.Y. 2018-19, and the section 33AC reserves in question are those created on or before 31 March 2004.
Common mistakes
- Reporting the capital gain on the transfer at clause 24.
- Answering nil without checking whether an old deduction exists to be clawed back.
- Missing an account withdrawal applied to a non-specified purpose.
- Treating these sections as spent because their deduction windows have closed.
- Leaving the remarks column blank, so the figure cannot be traced.