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Please help Which assets should be capitalised as per income tax

Ankush (Student) (1309 Points)

27 May 2021

whether accounting software renewal for a year should be capitalised?

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15 Replies

veerendar singh (tax consultant) (3301 Points)
Replied 27 May 2021

It must go to p&l as expense

Sundip Dalmia (Consulting and Advisory) (19 Points)
Replied 27 May 2021

accounting software licence fee paid every year should be charged off to PL over one year through prepaid. you should not capitalise this

Sivaramaraju G (Learner) (2398 Points)
Replied 27 May 2021

No, as the benefit of expenditure is not more than a year called it as revenue expense and all revenue expenses will go to PandL hence you should debit it to PandL.

Sivaramaraju G (Learner) (2398 Points)
Replied 27 May 2021

If you have renewed it in the middle of the year. say in the month of October then you can written off for 6 months expense in this year balance 6months expense in the next year.

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 27 May 2021

It is an intangible assets

CMA Poornima Madhava (CMA) (13097 Points)
Replied 27 May 2021

Renewal of software to be debited to P&L account.

veerendar singh (tax consultant) (3301 Points)
Replied 27 May 2021

It is not an intangible asset

sabyasachi mukherjee (26043 Points)
Replied 27 May 2021

PATENT ,COPYRIGHTS ARE INTANGIBLE ASSET.
PURCHASING OR INSTALLING A SOFTWARE DEPENDING UPON THE AMOUNT OF EXPENDITURE CAN BE CONSIDERED AS A DEFERRED REVENUE EXPENDITURE.

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 27 May 2021

But Accounting software should be intangible assets

veerendar singh (tax consultant) (3301 Points)
Replied 27 May 2021

But the transaction under consideration is not an intangible asset

CMA Poornima Madhava (CMA) (13097 Points)
Replied 27 May 2021

Originally posted by : Sourav
	But Accounting software should be intangible assets

Right, initially when the software is bought, it is an intangible asset. But the query here is about software renewal which is payable usually every year. So on what basis, do we need to capitalize this recurring expenditure?

veerendar singh (tax consultant) (3301 Points)
Replied 27 May 2021

Poornima i have already discussed this previously that it is not necessary that everytime the initial cost of software is an intangible asset.

it depends upon the software agreement.
in many case the initial cost is also written off as expense

Puneet Matha (32 Points)
Replied 28 May 2021

Revenue nature...expensed under P & L

Gagan Gupta (Chartered Accountant) (161 Points)
Replied 30 May 2021

Whether an expense is capital or revenue depends on future benefits that may accrue from that expense.

If future benefits restrict to one year then it will be revenue expense. However, if benefits for expenditure accrue for more than one year, it may be capital expenditure or deferred revenue expenditure (we usually book prepaid expense in this case).

Further, to qualify any expense as capital, there must be some new assets come into existence.

In this particular query, there is no new assets comes into existence, it is only a revenue expenditure.