AMORTIZATION OF CERTAIN PRELIMINARY EXPENSES
Section 35 D AMORTIZATION OF CERTAIN PRELIMINARY EXPENSES
•
Benefit u/s 35D is available to the following persons:
❑
An Indian company
❑
Any non-corporate assessee provided he is resident
in India(ie resident individual, resident HUF, resident firm, etc)
In other words, benefit u/s 35D is not available to a foreign company or a non-resident
• Deduction is available if the eligible assessee incurs any expenditure on specified purposes in the following manner:
❑ In case of new business: Eligible expenditure should be incurred before the commencement of business.
❑ In case of existing business: Eligible expenditure should be incurred for extension of existing business or setting up a new unit.
Eligible Expenditure (ie Purposes For Which Expenditure Should Be Incurred)
a)
The following four types of expenses are
allowed if the
work is carried
on by the assessee himself
or by a concern approved by CBDT:
❑
Expenditure on preparation of feasibility report
❑
Expenditure on preparation of project report
❑
Conducting market survey/any other
survey necessary for the business
of the assessee;
❑ Engineering services relating to the business of the assessee.
b) Legal charges for drafting an agreement related to setting up the business.
c)
The following expenditure in the case
of a company:
❑ Legal charges for drafting of MOA & AOA and expenses incurred on their printing; of the company under the Companies Act;
❑ Expenses incurred in connection with public issue of shares or debentures of the company (like underwriting commission; brokerage; expenses related to drafting, printing and advertisement of the prospectus, etc)
Quantum
of Deduction
|
Assessee |
Maximum
Deduction |
Period
of Deduction |
|
Indian
Company |
Lower
of the following two: •
Amount of eligible expenditure |
Deduction is
allowed in 5
equal installments in 5 years
in the following manner: |
|
|
OR •
5% of cost of project or 5% of
capital employed, whichever is
higher |
Ø In case
of new business: The period of 5 years would
start from the previous year in which the business
commences. Ø In case of existing business: The period of 5 years would
start from the previous year in which the extension of the
undertaking is completed or the new undertaking
commences operation. |
|
Resident Individual, Resident Firm, etc |
Lower
of the following two: •
Amount of eligible expenditure OR •
5% of cost of project |
Example: XYZ Ltd has commenced a new business during PY 2018-19. Eligible preliminary expenses are Rs 50,00,000. Cost of project & capital employed as on 31.03.2019 is 3 crore and 4 crore respectively. In this case, total amount of deduction permissible u/s 35D would come out to Rs 20 lakhs. Deduction of Ps 4,00,000 shall be allowed annually starting from PY 2018-19 and ending with PY 2022-23.
Meaning of Certain Terms
• "Cost of project" means the actual cost of fixed assets as on the year in which the business commences/the extension of the undertaking is completed or the new undertaking commences operation.
• "Capital employed" means the aggregate of issued share capital, debentures, long term, borrowings on the last day of the previous year in which the business commences/the extension of the undertaking is completed or the new undertaking commences operation
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