Section 35D of ITA, 1961 : Section 35D: Amortisation Of Certain Preliminary Expenses

Explanation using Example

Imagine XYZ Pvt. Ltd., an Indian company, incurred INR 1,000,000 on market surveys, legal charges, and drafting of project reports before starting its new manufacturing unit on April 1, 2022. These expenses are eligible under Section 35D of the Income-tax Act, 1961.

As per the Act, XYZ Pvt. Ltd. can claim a deduction of one-fifth of the expenditure, i.e., INR 200,000, each year for five years, starting from the financial year 2022-23.

This deduction helps the company reduce its taxable income, thereby lowering its tax liability over the initial years of the unit's operation.