What are Preliminary Expenses?

Question: What are Preliminary Expenses?

Answer: Preliminary expenses are where the promoters of a firm acquire while incorporating the organisation. In general, initial payments are not allowed because they are of capital in nature or accepted before the setting up of an enterprise. According to section 35D, the act was established to offer entrepreneurs facilitate to claim the deduction of preliminary expenses. Primarily, it is introduced to encourage entrepreneurs, those who are investing on their own. 

The main criteria to claim the deduction is a person should belong to be a resident of India. The following are the expenditure that can be claimed:

The payments are received before and after the firm’s beginning. It also includes the wing of the current project or in binding with establishing a new unit.

The maximum charge that can be deducted under the act will be 5% of the project’s cost. It cannot exceed 5% of the project’s cost utilised in the firm. Five annual instalments can pay these at the starting with commencing the previous year’s business. For instance, the number of logo expenses, paid for a consultation, etc.