The Central Board of Direct Taxes (CBDT) issued a directive dated October 21, 2025. This directive was introduced to ensure consistency in the evaluation of taxpayers operating in the entertainment industry. The measure addresses concerns raised in audit reports by the Comptroller and Auditor General (CAG). Recommendations made by the Public Accounts Committee (PAC) were also considered. The guidelines aim to resolve inconsistencies found in earlier assessments. These inconsistencies were observed in the treatment of preliminary expenses, film production reporting, and deductions related to production and distribution costs. The directive promotes transparency and compliance with the Income-tax Act, 1961. Standardised procedures have been laid down to support this objective.
The entertainment sector comprises various activities. These include television and radio broadcasting, film production, event management, music creation, sports organization, animation, and visual effects. Assessing Officers must evaluate each claim on a case-by-case basis. The unique nature of each business and its related expenditures should be considered during this process.
Principal Areas of Guidance
| Area | Key Provisions | Compliance Notes |
| Preliminary Expenses | Amortization allowed u/s 35D for eligible costs, including feasibility or project reports, legal fees for preparing agreements, market surveys, or engineering services. | Assess on an individual basis; submit Form 3AF as per Rule 6ABBB, applicable from AY 2024-25. |
| Feature Film Production- Form 52A Submission | Required u/s 285B, this form must detail the start and completion dates of production, as well as payments exceeding ₹50,000 to any participant. | E-filing deadline is 30 days from the end of the financial year or the film’s completion, whichever is earlier, followed with verification using DSC or EVC. Penalty for non-compliance u/s 272A(2)(k) is Rs 100 per day of delay, subject to max Rs 10,000. |
| Deduction for Production Expenses (Rule 9A) | Complete deduction for production costs is permitted if the film receives certification and is released at least 90 days prior to the year’s end; this applies irrespective of whether the rights are sold, or the film is exhibited independently. | Adjust deductible amounts by deducting any subsidies obtained through government programs; align claims with accounting records. |
| Deduction for Distribution Expenses (Rule 9B) | Permitted for costs associated with acquiring distribution rights, including minimum guarantee payments. | Does not include expenses for prints or advertisements; ensure consistency with required forms and documentation. |
Recommendations for Tax Professionals
To support proper implementation, tax professionals should follow these steps. These steps have been recommended to improve compliance and accuracy:
i) Confirm Legal References: Confirm the correct legal references while reviewing preliminary expenses. Any reliance on Section 32D should be corrected, as Section 35D is the appropriate provision.
ii) Preserve Detailed Records: Detailed records must be maintained for all relevant financial activities. These include documentation of preliminary expenses, production schedules, and payment details. Timely filing of Form 3AF and Form 52A is essential to avoid rejection of claims.
iii) Prepare for Scrutiny: Professionals should prepare for scrutiny by aligning expense claims with accounting records and statutory filings. Supporting materials must be consistent with these records. Under Rule 9A, production costs should be reduced by the amount of government subsidies to calculate accurate deductions.
iv) Prevent Penalties: Clients must be informed about submission timelines and electronic filing procedures. Non-compliance with Form 52A requirements may attract penalties under Section 272A(2)(k).
v) Refer to Authoritative Sources: Consult the latest CBDT notifications and the Income Tax Portal for current forms and instructions to maintain compliance.
The CBDT aims to establish a fair and consistent tax framework for the entertainment industry. Taxpayers and professionals are encouraged to review the full directive and apply it according to their specific circumstances.
These instructions from CBDT are a good move to maintain transparency and uniformity in the tax assessments of the entertainment sector. This effort is indicative of a well-conceived and systematic way to elevate the standard of tax administration and to increase the level of tax accountability.