Schedule UD – Unabsorbed depreciation and allowance under section 35(4) AY 2026-27
“Schedule UD” deals with the reporting of unabsorbed depreciation and allowances under section 35(4) of the Income Tax Act. This schedule is relevant for taxpayers who have depreciation or capital expenditure on scientific research that could not be fully set off against income in previous years and is now being carried forward to the current assessment year.
The schedule is divided into two broad sections. The first section relates to unabsorbed depreciation. It includes details such as the amount of depreciation brought forward from earlier years, any adjustments made if the taxpayer has opted for the new tax regime under section 115BAC(1A), the amount of depreciation actually set off against income in the current year, and the remaining balance that will be carried forward to the next year. The second section pertains to the allowance under section 35(4), which allows the carry forward of unabsorbed capital expenditure incurred on scientific research. Similar to the depreciation section, it captures the brought forward amount, the amount set off in the current year, and the balance carried forward.
Section 32 and Section 35 of the Income-tax Act, 1961
Unabsorbed depreciation refers to the portion of depreciation that could not be claimed as a deduction due to insufficient or no profits. Such unabsorbed depreciation can be set off against any income (other than salary) in the current year. If it still remains unadjusted, it may be carried forward to subsequent years for set-off.
Similarly, where the entire capital expenditure on scientific research cannot be absorbed in a year due to inadequate profits, the unabsorbed amount is treated in the same manner as unabsorbed depreciation. It can be set off against any income in the current year, and any balance remaining unabsorbed can be carried forward to be adjusted in future years.
This schedule applies to ITR-3, ITR-5 & ITR-6