Capital Expenditure (CapEx) is an economic and accounting concept that represents the funds spent by a government or a business to acquire, upgrade, or maintain long-term physical or fixed assets. It is an expense that creates permanent assets, such as land, buildings, machinery, and equipment, which are expected to yield benefits over multiple accounting periods. The concept has been in use since the 1830s.
The core problem CapEx solves is distinguishing between investments for future growth and costs for current operations, which is the related concept of Revenue Expenditure (RevEx). The distinction is crucial for taxation; the Supreme Court of India addressed this in the 1961 case of Commissioner of Income-Tax, Madras v. K. T. M. T. M. Abdul Kayoom, which established a precedent for classifying payments for long-term, exclusive rights as capital in nature.
In accounting, CapEx is capitalised and recorded on the balance sheet as an asset. It is not fully deducted from taxable income in the year it is incurred. Instead, its cost is gradually expensed over the asset's useful life through depreciation. The mechanism for this is governed by the Income Tax Act, 1961, with Section 32 providing for depreciation allowance on assets. For instance, capital expenditure on scientific research is addressed under Section 35 of the Act.
In the context of the Union Budget, CapEx is a key driver of economic growth, with the government's outlay rising sharply from ₹2 lakh crore in FY15 to a budgeted ₹12.2 lakh crore for FY27. A recent change is the Centre's plan to widen the scope of CapEx from FY28 to include spending on rehabilitating and upgrading public assets. This revamp will also shift software investments exceeding ₹1 lakh from revenue outlays to CapEx, aiming to better reflect investments in productive assets.