Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Preliminary expenses
Costs incurred to bring the company into existence — legal and professional fees, drafting the MOA/AOA, registration fees and stamp duty, and feasibility/project/market reports — are preliminary expenses. Rather than being fully deducted at once, they are amortised under Section 35D over five years (one-fifth a year), subject to the section’s limits.
What to watch
Section 35D has conditions and a ceiling (a percentage of cost of project / capital employed), and only specified categories qualify. Ordinary operating costs incurred before incorporation that aren’t ‘preliminary’ in nature may be treated differently. Keep proper invoices (ideally in the company’s name, or the promoters’ to be transferred), so they can be taken into the books. Confirm the current 35D limits and eligible items.
A worked example
Example: a startup spent ₹2 lakh on incorporation — CA/legal fees, MOA drafting, registration and a project report. It treats this as preliminary expenditure and amortises ₹40,000 a year for five years under Section 35D, reducing taxable profit each year. Founders who lose the invoices can’t claim it at all, so keeping records from the start matters. Our team can identify and set up your 35D claim.