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Deduction under Sec 35AD for specified businesses

Tax queries 368 views 3 replies

Aditya Hegde

1 Points Joined May 2024

Is it Mandatory for businesses fulfilling the criteria of Sec 35AD to claim deduction of expenses in the year of commencement itself i.e if business commences on 01/04/2018 can he claim the same in PY 2023-24??
Where a business is commenced in the year 2018, and purchases any capital asset necessary for the working of business in the year 2023, can he claim the deduction of capital expenses for the same i.e does the section implies that only capital expenses incurred before the commencement and capitalised in the books can be claimed and no subsequent capital expenses incurred can be claimed?
Where a Business operates under multiple branches, can that new branch/establishment claim deduction of revenue & eligible capital expenses incurred?

Replies (3)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9434 Points Joined December 2011

Businesses fulfilling the criteria of Sec 35AD can claim deductions for capital expenditures ¹ ² ³. However, the deduction should be claimed in the year when the business commences operations ² ³. If a business starts operating on April 1, 2018, and incurs expenses before that, it can claim the deduction for those expenses in the financial year 2017-2018, provided the expenses are capitalized in the books of account ² ³. If the business wants to claim the deduction in the previous year 2023-24, it will not be possible as per the Income Tax Act ² ³. It's always best to consult a tax professional or GST expert to ensure you're meeting all the necessary requirements ⁴.

Rama chary Rachakonda

Master in Accounts & high court Advocate

9434 Points Joined December 2011

As per Section 35AD, the deduction for capital expenses is allowed only in the year of commencement of business. However, this section also allows for the deduction of capital expenses incurred in the year of commencement or in any subsequent year, provided those expenses are incurred for the purposes of the business. So, if a business commenced in 2018 and purchases a capital asset necessary for the working of the business in 2023, the capital expenses incurred in 2023 can also be claimed as a deduction under Section 35AD. The section does not imply that only capital expenses incurred before the commencement and capitalized in the books can be claimed. Subsequent capital expenses incurred can also be claimed as a deduction, provided they meet the conditions specified in the section. However, it's important to note that the deduction for capital expenses incurred in subsequent years may be subject to certain conditions and limitations, such as: - The expenses must be incurred for the purposes of the business - The expenses must be capitalized in the books of account - The expenses must not be eligible for depreciation under the Income-tax Act - The business must be eligible for deduction under Section 35AD It's always best to consult a tax professional or GST expert to ensure you're meeting all the necessary requirements and to get specific guidance on your situation.

Rama chary Rachakonda

Master in Accounts & high court Advocate

9434 Points Joined December 2011

Yes, a new branch or establishment can claim deductions for revenue and eligible capital expenses incurred, provided it meets the conditions specified in the tax laws. In India, each branch or establishment is considered a separate unit for tax purposes, and is eligible to claim deductions for expenses incurred by that branch, subject to certain conditions. For revenue expenses, the new branch can claim deductions for expenses incurred entirely for its business purposes, such as: - Salaries and wages - Rent and utilities - Marketing and advertising expenses - Other operating expenses For capital expenses, the new branch can claim deductions for expenses incurred on capital assets used for its business purposes, such as: - Plant and machinery - Furniture and fixtures - Computers and software - Other capital assets However, the new branch needs to ensure that it maintains separate books of accounts, and the expenses are capitalized or revenueized as per the tax laws. Additionally, the branch should also comply with other tax provisions, such as obtaining a separate PAN, filing separate tax returns, and so on. It's always best to consult a tax professional or GST expert to ensure you're meeting all the necessary requirements and to get specific guidance on your situation.

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