Section 35D of Income Tax Act provides for Amortisation of preliminary expenses. As per Section 35D, any capital expenditure did before the commencement of operation of specified business then such expenditure is allowable as a deduction under the income tax in 5 equal annual installments subject to the fulfilment of different conditions given under the Income Tax Act.

Eligibility for Claiming Section 35D Deduction

Section 35D deduction can be claimed by

  • an Indian Company or
  • by a person other than a company who is resident in India.

Time and Purpose of the Preliminary Expenditure

Time Purpose
Before commencement of business To start a business
After commencement of business For expansion of existing business or setting up a new undertaking

Expenses Deductible under Section 35D

The following expenses are qualified for deduction under Section 35D

  • Expenditure incurred in connection with

1. Preparation of a feasibility report.

2. Preparation of a project report.

3. Conducting a market survey or any other survey necessary for the business of the assessee.

4. Engineering services relating to the business of the assessee.

  • Legal charges for drafting any agreement between the assessee and any other person relating to the setting up or conduct of the business of the assessee.
  • Where the assessee is a company, expenditure

1. By way of legal charges for drafting the MOA / AOA or printing of MOA / AOA.

2. Incorporation fee.

3. For the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus.

4. Other expenses as notified by the Government from time to time.

Maximum Amount Eligible for Deduction

5% of the cost of the project or 5% of capital employed in case of the company assessee.

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Qualification: CA in Practice
Location: BAREILLY, Uttar Pradesh, IN
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June 2021