Sec.35D
This query is : Resolved
08 April 2009
Whether expenses incurred on increase in authorised capital / Incorporation expenses of ROC are allowable to the extent of 20% or not?
Further what AS-29 says about such expenses?
Further what AS-29 says about such expenses?
08 April 2009
Fee to ROC for increasing capital can be deducted u/s 35D. Citation:- Punjab State Industrial Development Corporation Ltd 225 ITR 792 (SC).
08 April 2009
Incorporation expenses are covered u/s 35D(2) of The Income tax Act,1961.
Last part is left open for delibration.
Last part is left open for delibration.
08 April 2009
as-29, does not recognizes it as Intangible assets now, therefore it needs to be expensed in p& L a/c.
09 April 2009
What do you mean by now? Wheter earlier these expenses were treated as intangible assets?
Please answer with peculiarity ,this question is confusing me a lot
Please answer with peculiarity ,this question is confusing me a lot
23 July 2025
### **Section 35D – Expenses on Preliminary Expenses (Income Tax Act, 1961)**
**Section 35D** of the Income Tax Act, 1961 allows for the amortization of certain **preliminary expenses** incurred by a business. These expenses can be deducted over a period of **5 years** at **20% per year**. This includes expenses such as the costs related to **increasing the authorized capital** and **incorporation expenses**, which are typical examples of preliminary expenses.
### **Expenses Covered Under Section 35D:**
1. **Incorporation Expenses**:
* These include the **fees paid to the Registrar of Companies (ROC)** for incorporation and the legal and administrative expenses incurred while setting up a company.
* **Amortization**: These expenses can be **deducted over 5 years** (20% per year).
2. **Fees for Increasing the Authorized Capital**:
* Any fee or expenses incurred for the **increase of authorized capital** are also covered under Section 35D.
* These costs can similarly be **amortized over 5 years** at a rate of **20% per year**.
### **The Query: Is 20% Deduction Applicable?**
Yes, as per Section 35D, expenses on the **increase in authorized capital** and **incorporation expenses** are **deductible to the extent of 20%** each year for **5 years**.
For example:
* If a company spends ₹100,000 on increasing its authorized capital and ROC incorporation fees, it can claim a deduction of ₹20,000 each year for 5 years under Section 35D.
---
### **What Does AS-29 (Accounting Standard 29)** Say About Such Expenses?
**AS-29** refers to the **"Provisions, Contingent Liabilities, and Contingent Assets"** under **Accounting Standards**. This standard primarily governs the treatment of provisions and contingent liabilities, and it doesn't directly deal with the treatment of preliminary expenses, like those incurred for incorporation or increasing the authorized capital.
However, what you are referring to is likely **AS-26**, which deals with **Intangible Assets**. The treatment of certain initial expenditures (such as incorporation costs) under **AS-26** has changed in the past.
### **Earlier Treatment Under AS-26:**
In the past, under **AS-26**, certain expenses such as incorporation expenses, fees for increasing authorized capital, and similar items were sometimes treated as **intangible assets**. They were capitalized and amortized over time. However, **AS-26** changed this treatment, and these expenses are now typically **expensed** in the **Profit & Loss (P\&L) account** rather than being capitalized as intangible assets.
---
### **Key Points Regarding AS-29 and the Question:**
1. **Incorporation Expenses (Under AS-26)**:
* As of the latest guidelines, incorporation expenses (including ROC fees for increasing authorized capital) **should not** be treated as **intangible assets**. Instead, they should be **expensed** in the **Profit & Loss Account** in the year they are incurred unless they qualify under **Section 35D** of the Income Tax Act (for tax purposes).
2. **Amortization of Preliminary Expenses**:
* **Section 35D** allows such expenses to be **amortized over 5 years** for tax purposes. However, accounting standards (like **AS-26**) do not allow the capitalization of such expenses as intangible assets. They should be written off immediately unless specified otherwise by the tax laws.
---
### **Conclusion:**
* **For Tax Purposes (Income Tax Act, Section 35D)**: The expenses related to **increase in authorized capital** and **incorporation expenses** are allowed to be **deducted over 5 years**, with a **20% deduction each year**.
* **For Accounting Purposes (Under AS-26)**: Incorporation expenses are generally **expensed out** in the P\&L account immediately rather than capitalized as intangible assets. AS-29 does not apply directly to the treatment of such expenses, as it focuses on provisions and contingent liabilities.
So, the query seems to reflect the confusion between **tax treatment** (which allows amortization under Section 35D) and **accounting treatment** (which expenses them immediately under AS-26).
Let me know if this clears things up or if you need more clarification!
**Section 35D** of the Income Tax Act, 1961 allows for the amortization of certain **preliminary expenses** incurred by a business. These expenses can be deducted over a period of **5 years** at **20% per year**. This includes expenses such as the costs related to **increasing the authorized capital** and **incorporation expenses**, which are typical examples of preliminary expenses.
### **Expenses Covered Under Section 35D:**
1. **Incorporation Expenses**:
* These include the **fees paid to the Registrar of Companies (ROC)** for incorporation and the legal and administrative expenses incurred while setting up a company.
* **Amortization**: These expenses can be **deducted over 5 years** (20% per year).
2. **Fees for Increasing the Authorized Capital**:
* Any fee or expenses incurred for the **increase of authorized capital** are also covered under Section 35D.
* These costs can similarly be **amortized over 5 years** at a rate of **20% per year**.
### **The Query: Is 20% Deduction Applicable?**
Yes, as per Section 35D, expenses on the **increase in authorized capital** and **incorporation expenses** are **deductible to the extent of 20%** each year for **5 years**.
For example:
* If a company spends ₹100,000 on increasing its authorized capital and ROC incorporation fees, it can claim a deduction of ₹20,000 each year for 5 years under Section 35D.
---
### **What Does AS-29 (Accounting Standard 29)** Say About Such Expenses?
**AS-29** refers to the **"Provisions, Contingent Liabilities, and Contingent Assets"** under **Accounting Standards**. This standard primarily governs the treatment of provisions and contingent liabilities, and it doesn't directly deal with the treatment of preliminary expenses, like those incurred for incorporation or increasing the authorized capital.
However, what you are referring to is likely **AS-26**, which deals with **Intangible Assets**. The treatment of certain initial expenditures (such as incorporation costs) under **AS-26** has changed in the past.
### **Earlier Treatment Under AS-26:**
In the past, under **AS-26**, certain expenses such as incorporation expenses, fees for increasing authorized capital, and similar items were sometimes treated as **intangible assets**. They were capitalized and amortized over time. However, **AS-26** changed this treatment, and these expenses are now typically **expensed** in the **Profit & Loss (P\&L) account** rather than being capitalized as intangible assets.
---
### **Key Points Regarding AS-29 and the Question:**
1. **Incorporation Expenses (Under AS-26)**:
* As of the latest guidelines, incorporation expenses (including ROC fees for increasing authorized capital) **should not** be treated as **intangible assets**. Instead, they should be **expensed** in the **Profit & Loss Account** in the year they are incurred unless they qualify under **Section 35D** of the Income Tax Act (for tax purposes).
2. **Amortization of Preliminary Expenses**:
* **Section 35D** allows such expenses to be **amortized over 5 years** for tax purposes. However, accounting standards (like **AS-26**) do not allow the capitalization of such expenses as intangible assets. They should be written off immediately unless specified otherwise by the tax laws.
---
### **Conclusion:**
* **For Tax Purposes (Income Tax Act, Section 35D)**: The expenses related to **increase in authorized capital** and **incorporation expenses** are allowed to be **deducted over 5 years**, with a **20% deduction each year**.
* **For Accounting Purposes (Under AS-26)**: Incorporation expenses are generally **expensed out** in the P\&L account immediately rather than capitalized as intangible assets. AS-29 does not apply directly to the treatment of such expenses, as it focuses on provisions and contingent liabilities.
So, the query seems to reflect the confusion between **tax treatment** (which allows amortization under Section 35D) and **accounting treatment** (which expenses them immediately under AS-26).
Let me know if this clears things up or if you need more clarification!
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