Section 35d Deduction - For Preliminary Expenses

Section 35D of the Act was introduced to provide entrepreneurs with the facility to claim deductions for preliminary expenses. Preliminary expenses are expenses which the promoters of a company incur at the time of incorporating the company. Generally, preliminary expenses are disallowable on the ground that they are of a capital nature or incurred prior to the setting up of a business. However, to provide incentives to entrepreneurs who are spending their own money for incorporating a business enterprise, the Government introduced Section 35D of the

Income Tax Act. The present article provides an explanation of Section 35D.

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. To know about the concept of tax audit turnover in Income Tax, click

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Frequently Asked Questions

Common questions about Section 35D Deduction.

Section 35D of the Income Tax Act allows entrepreneurs and Indian companies to claim deductions for certain preliminary expenses incurred before or during the commencement of their business. It provides an incentive for individuals and companies to invest in setting up new business ventures.

Any Indian company or resident individual (other than a company) can claim deduction under Section 35D for qualifying preliminary expenses related to setting up a new business, extending an existing undertaking, or establishing a new unit.

Eligible expenses include costs related to preparing feasibility reports, project reports, market surveys, engineering services, legal charges for drafting agreements, incorporation fees, expenses for issuing shares or debentures, and any other expenses notified by the government.

The maximum deductible amount under Section 35D cannot exceed 5% of the cost of the project or, in the case of a company, 5% of the capital employed in the business.

The qualifying deductible amount is spread equally over 5 years, starting from the previous year in which the business commences, the extension is completed, or the new unit begins production or operation.

No, the article does not mention any specific time limit for claiming the deduction under Section 35D, as long as the expenses are incurred before or during the commencement of the business or extension of the undertaking.

Yes, Section 35D allows for deduction of expenses incurred after the commencement of business, as long as they are related to the extension of an existing undertaking or the setting up of a new unit.

The article does not mention any specific restrictions on the types of businesses that can claim the deduction under Section 35D, as long as the expenses are qualifying preliminary expenses related to setting up or extending the business.

Section 35D provides a tax incentive for entrepreneurs and businesses by allowing them to deduct certain preliminary expenses, which are typically disallowed as being capital in nature or incurred before the commencement of the business. This incentive helps encourage and support the establishment of new business ventures.

The deduction under Section 35D is available for both Indian companies and individuals who are residents of India (other than companies), provided they incur qualifying preliminary expenses related to setting up or extending a business.