Article explains Category of the person eligible for claiming deduction under section 35D, The extent of deduction allowable under section 35D, List of preliminary expenditure allowable as a deduction under section 35D and Some noteworthy points related to deduction under section 35D.
Amortization of preliminary expenditure is allowed as deduction under section 35D of the Income Tax Act. The entire provisions governing deduction available under section 35D is briefly explained in the present article.
An assessee falling under any of the following categories is eligible to claim deduction under section 35D–
1. An Indian Company; or
2. A person, other than the company, resident in India.
Lower of the following amount will be available as the total amount of deduction under section 35D–
|Amount||Meaning of the specific term|
|Aggregate actual expenditure||–|
|5% of the cost of the project||Cost of the project means the actual cost of fixed assets (i.e. land, building, leaseholds, machinery, plant, fittings, furniture and railway sidings) as on the last day of the previous year of commencement of business or extension of undertaking or setting up of the new unit.|
|5% of the capital employed||Capital employed means the total amount of issued share capital; debentures and long-term borrowings as on the last day of the previous year of commencement of business or extension of undertaking or setting up of the new unit.|
The total amount of deduction, as calculated above, will be available as a deduction in five equal instalments. The instalments will begin from the previous year in which business is commencement or extension of the undertaking is completed or new unit commences production/ operation.
Amortization of preliminary expenditure is available towards eligible expenditure which is incurred-
Provisions of section 35D(2) cover the list of eligible preliminary expenditure which is allowable as a deduction under section 35D of the Income Tax Act. The said list is summarized hereunder-
1. Expenditure for preparation of the feasibility report and project report.
2. Expenses incurred for conducting market or other surveys which is necessary for the business of the assessee.
.3. Expenditure for acquiring engineering services relating to the assessee’s business.
4. Legal expenses for-
5. Expenditure for the printing of Memorandum and Article of Association of the company.
6. Expenses for drafting, printing, typing and advertisement of the prospectus of the company.
7. Registration fees paid for registering the company under the Companies Act, 1956.
8. Expenditure towards the issue of shares/ debenture for public subscription.
9. Any other prescribed expenditure which is not deductible under any other provisions of the Act.