Rule 272 of the Draft Income-tax Rules, 2026 prescribes the conditions for allowing deduction of expenditure incurred on the production of feature films while computing profits from the business of film production. The rule applies to feature films certified for release by the Board of Film Censors in a tax year. If the film producer sells all rights of exhibition of the film in the same tax year in which the film is certified, the entire cost of production is allowed as a deduction in that year. Similarly, where the producer commercially exhibits the film, sells exhibition rights in certain areas, or combines exhibition and sale of rights, the entire production cost is deductible in the same tax year if the film is released for commercial exhibition at least ninety days before the end of that year. If the film is not released at least ninety days before the end of the tax year, the deduction is limited to the amount realised from exhibition or sale of exhibition rights during that year, and any remaining cost is carried forward and allowed as a deduction in the following tax year. Where the producer neither exhibits the film commercially nor sells exhibition rights during the tax year of certification, no deduction is allowed in that year and the entire production cost is carried forward. Deduction is allowed only if the amounts realised from exhibition or sale of rights, including minimum guarantee arrangements, are credited in the books of account. The Assessing Officer may allow deduction in another manner if the transfer of rights does not fall within the prescribed modes or if applying the rule is impracticable. The rule also clarifies that sale of exhibition rights includes lease or transfer on a minimum guarantee basis and defines the meaning of “cost of production” and “Board of Film Censors.”
Extract of Rule No. 272 of Draft Income-tax Rules, 2026
Rule 272
Deduction in respect of expenditure on production of feature films.
(1) In computing the profits and gains of the business of production of feature films carried on by a person (hereinafter in this rule referred to as “film producer”), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a tax year shall be allowed in accordance with the provisions of sub-rule (2) to (4).
(2) Where a feature film is certified for release by the Board of Film Censors in any tax year and in such tax year,—
(a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such tax year; or
(b) the film producer-
(i) himself exhibits the film on a commercial basis in all or some of the areas; or
(ii) sells the rights of exhibition of the film in respect of some of the areas; or
(iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,
and the film is released for exhibition on a commercial basis at least ninety days before the end of such tax year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such tax year.
(3) Where a feature film is certified for release by the Board of Film Censors in any tax year and in such tax year, the film producer—
(a) himself exhibits the film on a commercial basis in all or some of the areas; or
(b) sells the rights of exhibition of the film in respect of some of the areas; or
(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least ninety days before the end of such tax year, the cost of production of the film in so far as it does not exceed –
(i) the amount realised by the film producer by exhibiting the film on a commercial basis; or
(ii) the amount for which the rights of exhibition are sold; or
(iii) the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition;
shall be allowed as a deduction in computing the profits and gains of such tax year and the balance, if any, shall be carried forward to the next following tax year and allowed as a deduction in that year.
(4) Where during the tax year in which a feature film is certified for release by the Board of Film Censors, and the film producer––
(a) does not himself exhibit the film on a commercial basis; or
(b) does not sell the rights of exhibition of the film,
no deduction shall be allowed in respect of the cost of production of the film in computing the profit and gains of such tax year and entire cost of production shall be carried forward to the next following tax year and allowed as a deduction in that year.
(5) Irrespective of anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,—
(a) in a case where the film producer—
(i) has himself exhibited the feature film on a commercial basis; or
(ii) has sold the rights of exhibition of the feature film; or
(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,
the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible;
(b) in a case where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.
(6) Where the Assessing Officer is of the opinion that—
(a) the rights of exhibition of the feature film have been transferred by a mode not covered by this rule; or
(b) having regard to the facts and circumstances of the case, it is not practicable to apply the provisions of this rule,
he may allow deduction in respect of cost of production of the film in such other manner as he may consider suitable.
(7) For the purposes of this rule,—
(a) sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis;
(b) the rights of exhibition of a feature film shall be considered to have been sold only on the date
(i) when the positive prints of the film are delivered by the film producer to the purchaser of such rights or
(ii) when the negative of the film is delivered by the film producer to the film distributors defined in rule 273, where in terms of the agreement between the film producer and the film distributor, the positive prints are to be made by the film distributor.
(8) In this rule,—
(a) ‘Board of Film Censors’ means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952);
(b) ‘Cost of production’, in relation to a feature film, means the expenditure incurred on the production of the film, not being—
(i) the expenditure incurred for the preparation of the positive prints of the film; and
(ii) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors, and the cost of production of a feature film shall be reduced by the amount of subsidy received under any Government scheme, where such amount has not been included in the total income of the assessee for any tax year.
