Income Tax law’s Section 35D comes up with the payment reduction policies of specific preliminary expenses borne by an Indian enterprise or a residential individual who is about to start a venture, set up a new industrial department or looking to expand a commercial quest.
The deduction is given against the gains secured by the Indian corporate entity in ten uniform instalments over a decade starting from the preceding year that witnessed the inception of the business. This deduction applies only to a limited set of costs defined under particular heads on 31st March 1970. One of the few sections among the qualifying costs mentioned under this principle includes the rehearsal of the project summary and conducting market research necessary to analyze the course of business. Another such example prevails surrounding engineering duties required to maintain the commercial processes of an assessee
Preliminary Expenses Under Section 35D
The corporate entity applying for deduction must prove satisfactory competence and eligibility to shell out consultancy services associating elements highlighted in the IT Act’s Section 35D(2)(a). The concerned committee evaluates the firm’s overall success in previous consultancy activities before granting permission. Authorisation is provided to Indian consultancy trusts that are operated primarily in India. On the other hand, when an overseas concern seeks approval, the Board permits the range of services that are specifically not attainable through native concerns. All applicants who wish to reap the benefits must have a minimum of one year of professional exposure in the consultancy field. They must have charged a minimum of ₹10,000 from a single client in any operational annual cycle.
Definition of Preliminary Expenses
Preliminary expenses are the costs incurred by a corporate entity before formally registering or starting the venture. Also, the costs attracted while organizing newer units of an established business fall under the category of preliminary expenses.
For non-companies, the total preliminary amount is a cumulative figure of expenses shown in the feasibility report, market enquiry reports, and legal fees associated with agreement issuance. However, when we consider corporate entities, the charges stipulated on the prospectus and MOA are also taken into account. In both cases, an audit is mandatory from CA.
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. The expenses that can be claimed as a deduction under Section 35D must pertain to:
- Expenditure incurred before the commencement of business.
- Expenditure incurred after the commencement of business in connection with the extension of existing undertaking or in connecting with setting up a new unit.
Expenses Deductible under Section 35D
The following expenses are qualified for deduction under Section 35D:
- Expenditure incurred in connection with:
- Preparation of a feasibility report.
- Preparation of a project report.
- Conducting a market survey or any other survey necessary for the business of the assessee.
- 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, also, expenditure:
- By way of legal charges for drafting the MOA / AOA or printing of MOA / AOA.
- Incorporation fee.
- For 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.
- Other expenses as notified by the Government from time to time.
Amount Deductible under Section 35D
The maximum deductible under Section 35D cannot be over 5% of the cost of the project. In the case of a company, the maximum deduction cannot exceed 5% of the cost of the project or the capital employed in the business of the company. The amount qualifying as deduction as per the limit will be allowed as a deduction in 5 equal annual instalments beginning with the previous year of commencement of business or the previous year in which the extension of an industrial undertaking is completed or the new industrial unit commences production or operation
FAQs
How an Indian Company Is Able to Claim a Deduction Under Section 35D?
By now it is clear that to avail of the benefits of Section 35D, a company needs to be registered in India or the proprietor/entrepreneur needs to be an Indian by birth. In the following sections we have presented the major expenses that are covered under Section 35D for significant deductions:
- Costs attracted before the official registration of businesses
- Costs experienced after the commercial outset have been designed for a projected expansion i.e., setting up of a new industrial unit
Maximum Amount Eligible for Deduction?
The deduction permissible under Section 35D is capped at a maximum of 5% of the project’s cost. For companies, this deduction cannot surpass 5% of the project’s cost or the capital employed in the company’s business.
The deductible amount, subject to the specified limit, will be permitted as a deduction in five equal annual instalments. These instalments are counted from the previous year of business commencement, completion of the industrial undertaking extension, or the initiation of production or operation in the new industrial unit.
Practice area's of B K Goyal & Co LLP
Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Demand Notice | Psara License | FCRA Online
Company Registration Services in major cities of India
Company Registration in Jaipur | Company Registration in Delhi | Company Registration in Pune | Company Registration in Hyderabad | Company Registration in Bangalore | Company Registration in Chennai | Company Registration in Kolkata | Company Registration in Mumbai | Company Registration in India | Company Registration in Gurgaon | Company Registration in Noida | Company Registration in lucknow
Most read resources
tnreginet |rajssp | jharsewa | picme | pmkisan | webland | bonafide certificate | rent agreement format | tax audit applicability | 7/12 online maharasthra | kerala psc registration | antyodaya saral portal | appointment letter format | GST Search Taxpayer | caro 2020 | Challan 280 | itr intimation password | internal audit applicability | preliminiary expenses | mAadhar | e shram card | aaple sarkar portal | epf activation | scrap business | brsr | depreciation on computer | west bengal land registration | traces portal | Directorate general of GST Intelligence | form 16 | rtps | patta chitta
