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Business Tax - Preliminary Expenses

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Do you know that you can save your business tax by claiming deduction for the preliminary expenses?

The preliminary expenses incurred either,

• Before the commencement of the business, or

• After the commencement of the business in connection with the

  1. Extension of your existing business.

  2. Setting-up of the new business.

is eligible for deduction as under: -

Assessee	Preliminary expenditure restricted to	Deductible  over the period of
Indian Company	At the option of the assessee 5% of the cost of the project, or 5% of the capital employed.	Five years
Other resident assessee	5% of the cost of the project	Five years

Note:

Cost of Project

It means cost of land, buildings, plant, machinery, etc., in connection with your new business/extension of existing business.

Capital employed

It means aggregate of the issued share capital, debentures and long term borrowings in connection with your new business/extension of existing business.

What expenditures are regarded as preliminary expenses?

Preliminary expenses means,

1. Expenditure incurred for

   1. Preparation of feasibility report

   2. Preparation of project report

   3. Conducting marketing survey or any other survey necessary for business

   4. Engineering services related to the business

2. Legal charges for drafting any agreement between you and any other person for conducting or splitting up of your business.

3. In case of companies, the following expenses are treated as preliminary expenses in relation to business-taxation.

   1. Legal charges for drafting and printing charges of Memorandum and Articles of association.

   2. Registration fees.

   3. In relation to

      • Issue of shares or debentures of a company, for public subscription

        • Underwriting commission

        • Brokerage and any other expenditure

      • Prospectus

        • Drafting

        • Typing

        • Printing and

        • Advertisement

4. Such other prescribed items not eligible for deduction under any other provision of the Act.

Note:

Plan carefully while you start your business and save your business-tax by claiming the deduction for the preliminary expenses relating to your business start-up or extension. 

Donot wait till you commence the business to start accounting. Keep record of the preliminary expenses incurred from the very beginning.

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