Amortisation of certain preliminary expenses

If an assessee, an Indian company or a person who resides in India, spends money after March 31, 1970, either before or after the start of their business, in connection with expanding their operation, or setting up a new unit, they are eligible to claim a deduction equal to one-tenth of that amount for each of the ten years prior to the current year, starting with the previous year.

The provisions of this sub-section will take effect as if the words "an equal amount to one-tenth of such expenditure in each of the ten successive previous years" had been replaced with "an equivalent amount to one-fifth of such expenditure in each of the five successive previous years" if an assessee incurs any expenditure listed in a sub-section after March 31, 1998.

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The expense mentioned in the aforementioned sub-section is the expense listed in one or more of the following clauses, namely:-

(a) Expenditure related to the creation of a feasibility report, a project report, a market survey, or any other survey required for the assessee's business, as well as engineering services related to that business.

(b) Legal fees for writing any contract between the assessee and any person for any purpose connected to the establishment or operation of the assessee's business.

(c) Where the taxpayer is a company, also expenditure:-

      (i) by way of legal fees for preparing the company's articles of incorporation and memorandum;

      (ii) upon the Memorandum and Articles of Association's publishing;

      (iii) by way of registration costs paid in accordance with the Companies Act of 1956. (1 of 1956);

      (iv) in connection with the issuance of shares or debentures of the firm for public subscription, including underwriting commission, brokerage fees, and costs associated with the drafting, typing, printing, and advertising of the prospectus.

(d) such additional expenditures that may be mandated, provided they are not qualified for an allowance or deduction under another provision of this Act.

When the total of the expenses mentioned in the aforementioned sub-section exceeds a figure equal to 2.5 percent of the project's cost, or, if the assessee is an Indian company, the capital used in the company's operations, at the option of the company, the excess shall be disregarded for the purposes of computing the deduction permitted under the first sub-section.

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