Whether the repair of machinery is capital or revenue expenditure is settled by one question, and it is not the size of the bill: did the money preserve a machine you already own, or did it bring a new asset into existence or buy you a lasting advantage? The first is repair spend and comes off this year’s profit under section 28(1)(f) of the Income-tax Act, 2025. The second is capital, joins the block of assets and is recovered only through depreciation. Pay any bill above ₹10,000 in cash on one day and you can lose the claim on either side of that line.

Repair of machinery is capital or revenue expenditure: the test the Supreme Court uses

The Supreme Court settled the test in Commissioner of Income Tax v. Sri Mangayarkarasi Mills (P) Ltd, decided on 21 July 2009, restating what it had held two years earlier in Commissioner of Income Tax v. Saravana Spinning Mills (P) Ltd on 10 August 2007. The question, in the court’s words, is “whether the expenditure is incurred to ‘preserve and maintain’ an already existing asset and not to bring a new asset into existence or to obtain a new advantage”.

Then comes the line most owners find counter-intuitive. The same judgment adds that for deciding current repairs, “whether expenditure is revenue or capital is not the proper test”. The amount on the invoice proves nothing. A full engine strip-down that puts a nine-year-old machine back to the condition it was working in last season is repair spend. A far smaller bill that fits a component the machine never had, and that lets it do work it could not do before, is capital.

Two more words in the statute do real work. Section 28(1)(f) allows current repairs, and the Saravana judgment is blunt about the limit that word sets: “All repairs are not current repairs.” Current repairs are the ones attended to when the need arises in the ordinary course of running the business, judged from a businessman’s point of view.

The two sections that allow a repair bill, and the numbers everyone still quotes

Section 28(1)(f) of the Income-tax Act, 2025 allows “the amount paid on account of current repairs to machinery, plant or furniture, not being in the nature of capital expenditure”. If the spend clears that wording, it is deducted in the year it is paid.

A repair that fails the current-repairs test has a second door. Section 34(1) allows any expenditure that is not covered by sections 28 to 33, is not capital expenditure and is not personal, laid out wholly and exclusively for the purposes of the business. The Supreme Court pointed to exactly this route in Saravana: repairs that are not current repairs can still be claimed if they are not capital in nature. So a repair bill has two chances, and only genuine capital spend is shut out of both.

Note the section numbers. Almost every article and ledger narration in the market still cites section 31(i) for repairs and section 37(1) for the residual deduction. Those are provisions of the Income-tax Act, 1961, which stopped applying from 1 April 2026, when the Income-tax Act, 2025 came into force. The wording carried over almost unchanged; the numbering did not.

One more clause catches machine owners who run a machine for the family farm or a personal site as well as for hire. Section 28(2) restricts the deduction to a fair proportionate part where the machinery is not used wholly and exclusively for the business, and leaves the Assessing Officer to determine that proportion. A logbook of hours by job is the cheapest defence against someone else choosing the ratio for you.

Where a parts bill usually lands

The table below applies the preserve-and-maintain test to the bills a machine owner actually sees. Treat it as the starting point for a conversation with your accountant, because the facts recorded on the invoice decide each case.

What the money went on Usual treatment Why it lands there
Filters, engine and hydraulic oil, coolant, hoses, belts, bucket teeth, cutting edges Revenue Consumables replaced as the need arises; the machine is restored, never improved
Final drive, hydraulic pump, swing motor or radiator fitted to a machine already in use Revenue A part of one asset is renewed so that asset keeps working
Undercarriage, track chains and rollers replaced at the end of their wear life Revenue Wear parts consumed by use; capacity after the job equals capacity before it
Engine overhaul that returns the machine to its earlier output Revenue, on those facts Preserves an existing asset rather than creating one, but the job sheet must say so
A component of higher capacity, or a conversion that lets the machine do new work Capital A new advantage the machine did not have before
An attachment bought as a separate unit, such as a breaker or a grab Capital An asset in its own right, not a repair to another one
Reconditioning a machine bought in unusable condition, before it is put to work Capital Spent to make the asset fit for use, so it belongs in the asset’s cost

One caution on the case law. Saravana and Mangayarkarasi both concerned textile mills, where the court held that each machine in the production line was an independent asset, so replacing a whole machine could not be dressed up as repairing the mill. An excavator is a single asset and its engine, pump and final drive are parts of it, which is why renewing one of them normally reads as repair. The moment a bill replaces the whole machine, or buys a unit that stands on its own, the mill cases apply with full force. Our notes on what a final drive repair involves, on hydraulic pump repair and on undercarriage replacement set out what each job physically does, which is the evidence this test runs on.

What changes when the part leaves the machine better than before

Capitalised spend is not lost, only slowed down. It is added to the asset and recovered through depreciation under section 33, which is computed on the written down value of the block of assets at a percentage the rules prescribe rather than one printed in the Act. The mechanics, including the half-year rule that turns on the date the asset is put to use, sit in our note on the depreciation rate on construction machinery.

Two reductions catch people out when the figure is computed. Section 39(1)(b) reduces an asset’s actual cost by the goods and services tax on which input tax credit has been claimed and allowed, so the same tax cannot be both credited and depreciated; the credit side is covered in our note on GST input credit on a construction machine. Section 39(1)(d) strips out any subsidy, grant or reimbursement relatable to the acquisition. A capitalised major repair also changes the figure you carry forward on a sale, which runs through capital gain on the sale of machinery.

If a rebuild of that size is going to sit on the balance sheet rather than in this year’s expenses, the funding question usually opens with it. Owners in that position compare equipment finance and loan options before committing the cash, because a capitalised repair ties up working capital and returns it only over several years of depreciation.

The ₹10,000 cash rule that quietly kills the claim

This is the part of the law that costs machine owners the most money, and it has nothing to do with repair or capital. Section 36(4) says that where payments to one person in a single day exceed ₹10,000 and are not made through a specified banking or online mode, the expenditure paid that way is not allowed as a deduction. Section 36(6) reads the figure as ₹35,000 where the payment is for plying, hiring or leasing goods carriages. Section 36(5) goes further: settle an earlier year’s booked liability in cash above the limit and that payment becomes taxable income in the year you pay it.

The capital side has its own version. Section 39(2) excludes from an asset’s actual cost any payment, or aggregate of payments in a day to one person, above ₹10,000 made otherwise than through a specified banking or online mode, for acquiring an asset or part thereof. Pay a large parts invoice in cash and the money is gone from both routes at once: no deduction as a repair, and no depreciation as capital.

The practical rule is short. A parts invoice from the authorised dealer, paid by bank transfer, in the name of the business that owns the machine, with the work described accurately, survives scrutiny. A cash payment against a hand-written slip does not, however genuine the repair was.

If you are on presumptive tax, this decision is already made for you

None of the above applies if you have opted into the presumptive route. That scheme replaces the computation of profit, so diesel, operator wages, repairs, parts and depreciation are not claimed separately; the declared percentage is deemed to be your profit after all of them. Owners weighing that trade-off, including the five-year lock it carries, should read our note on presumptive taxation for contractors before the return is filed, not after.

Four things to settle before the bill is booked

  • Ask the workshop to describe the work on the invoice: restored to working condition, or upgraded. That one sentence is the evidence the treatment rests on.
  • Check whether the machine was in use before the job. Spend to make a newly bought machine fit for use is capital, whatever the workshop calls it.
  • Pay through the bank. Any single day’s payment to one party above ₹10,000 breaks both the deduction and the depreciation.
  • Keep the hour log if the machine also does non-business work, because section 28(2) leaves the proportion to the Assessing Officer otherwise.

Once the treatment is clear, the next decision is usually how the job is paid for: look at machine finance options and talk the repair-versus-replace maths through before the machine is stripped.

Statutory limits, section numbers and tax positions change, and the treatment of any repair turns on the facts recorded for that job. This is general information for machine owners, not tax advice, and the section references are to the Income-tax Act, 2025 as in force on 5 November 2026. Confirm the treatment of a specific bill with your chartered accountant or the official source before you claim it.