Preliminary expense

Sec 35D – Deduction for Preliminary Expenses

Where an Indian company or resident non corporate assessee incurs any expenditure on specified purposes

i)Before commencement of his business or 
ii)After commencement of his business, in connection with extension of his industrial undertaking or in connection with setting up new industrial unit.
The deduction shall be allowed in respect of preliminary as under:

Least of the following is allowed in 5 equal instalments
i)Actual amount incurred on specified purpose.
ii)5% of cost of project (In case of company, COP or Capital employed whichever is higher).

Cost of project means actual cost of fixed assets on last day of previous year in which business is commenced.

Capital Employed means Share capital + Debentures + Long term borrowing as on the last day of previous year in which business is commenced