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Pre incorporation expense accounting & tax treatment

sachin Nair (5 Points)

04 March 2021

hello, can anyone please explain the treatment of pre incorporation expense in both accounting & tax ??

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 04 March 2021

Pre incorporation, start up costs are expensed which includes legal and secretarial. Only those expenses recognised under PPE are capitalised. The it act has a different version

The deduction allowed shall be lower of actual expense incurred or:

5% of the cost of a project (cost of project= cost of fixed assets as on the last day of the previous year)
5% of capital employed- applicable to a company (capital employed= paid up capital+debentures+long term borrowings as on the last day of the previous year)
The amount so calculated above shall be allowed as a deduction equally over a period of 5 years. https://cleartax.in/s/amortization-preliminary-expenses