Schedule-vi

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 April 2012 Please guide that in new Schedule VI, the preliminary/preoperative expenses have to be written off completely in the Profit & Loss or only 1/5th portion would be written off for the FY 2011-12.

Mihir Doshi

Mihir Doshi (Expert)
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30 April 2012 Dear Author,

Revised Schedule VI doesnot prescribe the treatment. It speaks about presentation disclosure.

For preliminary Expense, you need to go through respective Accounting Standard or Guidance note for the same.

Thanks
Mihir doshi

Mihir Doshi

Mihir Doshi (Expert)
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Querist : Anonymous

Querist : Anonymous (Querist)

30 April 2012 Sir, thanks a lot. Please let me know that if a trading company increases its authorized capital, expenses pertaining to it can be amortized in 5 years u/s 35D or not. Sec 35D speaks of preliminary expenses. Now increase in authorized capital of a trading company is a preoperative expenditure and whether it can be amortized over a period of 5 years u/s 35D in Income Tax? Please guide.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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23 July 2025 Great question! Here's a detailed clarification on **preliminary/preoperative expenses** under **Revised Schedule VI** and **Section 35D of the Income Tax Act**:

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### 1. **Treatment under Revised Schedule VI (Accounting Perspective)**

* **Revised Schedule VI** does **not prescribe the method of amortization or write-off** of preliminary/preoperative expenses.
* It mainly deals with **presentation and disclosure** in financial statements.
* For the **accounting treatment**, you need to refer to:

* **Accounting Standards (AS)**
* **Guidance Notes issued by ICAI**
* Typically, preliminary/preoperative expenses are **capitalized as intangible assets or deferred revenue expenses** and written off over a reasonable period (commonly 5 years) on a **systematic and rational basis**.

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### 2. **Tax Treatment under Section 35D of the Income Tax Act**

* Section 35D allows **amortization of preliminary expenses over 5 years** (starting from the year the business commences).
* **Preliminary expenses** include \*\*expenses incurred for:

* Formation of the company,
* Increase in authorized capital,
* Commission to underwriters, etc.\*\*
* So, if a trading company incurs expenses for increasing authorized capital, it **qualifies as preliminary expenses**.
* Such expenses can be **amortized over 5 years** under Section 35D for Income Tax purposes.

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### Summary:

| Aspect | Treatment |
| ---------------------------- | ---------------------------------------------------------------------------------------------- |
| **Accounting (Schedule VI)** | No prescribed write-off method; refer to AS & GAAP; usually amortize over 5 years. |
| **Tax (Section 35D)** | Preliminary expenses (including increase in authorized capital) can be amortized over 5 years. |

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If you want, I can help draft journal entries or provide example disclosures for your financials!

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