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Preliminary Expenses Amortisation

Preliminary Expenses Amortisation

[Section 35D] deals with Preliminary Expenses Amortisation :

(1) Section 35D provides for the Preliminary Expenses Amortisation incurred by Indian companies and other resident non-corporate taxpayers for the establishment of business concerns or the expansion of the business of existing concerns.

(2) This section applies

(a) only to Indian companies and resident non-corporate assessees;

(b) in the case of new companies to expenses incurred before the commencement of the business;

(c) in the case of extension of an existing undertaking to expenses incurred till the extension is completed, i.e., in the case of the setting up of a new unit – to expenses incurred till the new unit commences production or operation.

(3) Such preliminary expenditure incurred shall be amortised over a period of 5 years. In other words, 1/5th of such expenditure is allowable as a deduction for each of the five successive previous years beginning with the previous year in which the business commences or, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation, as the case may be.

Preliminary Expenses Amortisation

(4) Eligible expenses – The following expenditure are eligible for amortisation:

(i) Expenditure in connection with –

  1. (a) the preparation of feasibility report
  2. (b) the preparation of project report;
  3. (c) conducting market survey or any other survey necessary for the business of the assessee;
  4. (d) engineering services relating to the assessee’s business;
  5. (e) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to thesetting up to conduct the business of assessee.

(ii) Where the assessee is a company, in addition to the above, expenditure incurred –

  1. (f) by wayof legal charges for drafting the Memorandum and Articles of Association of the company;
  2. (g) on printing the Memorandum and Articles of Association;
  3. (h) by way of fees for registering the company under the Companies Act; 1956

(i) in connection with the issue, for public subscription, of the shares in or debentures of the company,

(ii)being underwriting commission, brokerage and charges for drafting, printing and advertisement of the prospectus; and

Preliminary Expenses Amortisation

(iii) Such other items of expenditure (not being expenditure qualifying for any allowance or deduction under any other provision of the Act) as may be prescribed by the Board for the purpose of amortisation.

However, the Board, so far, has not prescribed any specific item of expense as qualifying for amortisation under this clause.

In the case of expenditure specified in items (a) to (e) above, the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or any other survey or the engineering services referred to must be carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board.

With regards,

Thank You.

Preliminary Expenses Amortisation

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Preliminary Expenses Amortisation

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