Assessees who can claim deduction under this section are:
- Indian Company, or
- a person other than a company who is resident in India.
1. Expenditure in respect of which Deduction is Available
- expenditure incurred before the commencement of business; or
- expenditure incurred after the commencement of business in connection with the extension of existing undertaking or in connection with setting up a new unit.
2. Expenses Qualifying for Deduction:
The following expenses qualify for deduction:
- Expenditure incurred in connection with:
- preparation of a feasibility report;
- preparation of a project report;
- conducting market survey or any other survey necessary for the business of the assessee;
- engineering services relating to the business of the assessee;
- legal charges for drafting any agreement between the assessee and any other person relating to the setting up or conduct of the business of the assessee;
- where the assessee is company, also, expenditure—
- by way of legal charges for drafting the Memorandum and Articles of Association of the company;
- on printing of the Memorandum and Articles of Association;
- by way of fees for registering the company under the provisions of the Companies Act, 1956;
- in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;
- such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provisions of this Act) as may be prescribed.
3. Amount Qualifying for Deduction:
The aggregate of the expenditure referred to in clauses (a) to (d) above shall not exceed 5% of the cost of the project in case of all assessees other than companies.
In the case of a company, it cannot exceed 5% of—
- the cost of the project, or
- the capital employed in the business of the company,
whichever is beneficial to the company.
4. Quantum of Deduction:
The amount qualifying, as per the limits specified above, shall be allowed as a deduction in 5 equal annual instalments beginning with the previous year of commencement of business or the previous year in which the extension of undertaking is completed or the new unit commences production or operation.
5. Compulsory Audit of Accounts:
No deduction shall be admissible under this section in case of assessees other than a company or cooperative society unless the accounts of the assessee for the year or years for which the expenditure specified above is incurred have been audited by a chartered accountant and the assessee furnishes alongwith his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form i.e. Form 3B duly signed by such Chartered Accountant.