LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Prelim expenses

Yasaswi Gomes new (Finance ) (4475 Points)

10 November 2023

Preliminary expenses like start up, preoperative etc are expenses. Under what section of company law or tax law is it permitted to be capitalised?

Txs

Reply
Follow
Share

11 Replies

Eswar Reddy S (CFO- at NHTF) (58213 Points)
Replied 10 November 2023

Section 35D of companies act

1 Like

prasad Nilugal ( GST Practitioner & Accounts ) (14167 Points)
Replied 10 November 2023

@ Eswar Reddy

Section 35 of the Companies Act is different may not be related to preliminary expenses , please Confirm.

1 Like

Yasaswi Gomes new (Finance ) (4475 Points)
Replied 10 November 2023

Everything is there in 35D(2). On top of them we have to asses the measurement principles as well.

prasad Nilugal ( GST Practitioner & Accounts ) (14167 Points)
Replied 10 November 2023

Section 35(D) of the Income tax Act or Companies Act 2013

sabyasachi mukherjee (26057 Points)
Replied 10 November 2023

Preliminay expenses to the extent not written off

Yasaswi Gomes new (Finance ) (4475 Points)
Replied 10 November 2023

https://incometaxindia.gov.in/Acts/Income-tax

Incometax act

Yasaswi Gomes new (Finance ) (4475 Points)
Replied 10 November 2023

the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the ⁹²[***] undertaking is completed or the new ⁹²[***] unit commences production or operation :

⁹³[Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words “an amount equal to one-tenth of such expenditure for each of the ten successive previous years”, the words “an amount equal to one-fifth of such expenditure for each of the five successive previous years” had been substituted.]"

What does it mean? Does it mean that out of 1000/- prelim expenses, just one tenth can be capitalised.

What does successive previous ten years mean? Does it mean before March 1998 and after that no need to follow this?

sabyasachi mukherjee (26057 Points)
Replied 11 November 2023

To the extent it is not written off.

1 Like

Yasaswi Gomes new (Finance ) (4475 Points)
Replied 14 November 2023

Cleartax portal has different version and its directly applying 5% and amortised for 5 years. @ Mr. Sabyasachi what is the meaning of "to the extent not written off"

CA Aman Rajput (Chartered Accountant) (8105 Points)
Replied 16 November 2023

Preliminary expenses can be capitalized under Section 35D of the Income Tax Act, 1961

To be eligible for capitalization, preliminary expenses must meet the following conditions:

-They must be incurred before the commencement of business.

-They must be directly related to the setting up of the business.

-They must be of a capital nature, i.e., they are expected to provide a long-term benefit to the business.

If preliminary expenses meet these conditions, they can be amortized over a period of 10 years. This means that the expenses are spread out over 10 years for tax purposes, which reduces the company's taxable income in the year in which the expenses are incurred.

1 Like