Section 35D of the Income Tax Act is proposed to be amended in Clause 12 of the Finance Bill 2023 to remove the requirement for using companies pre-approved by the Board for conducting feasibility studies or preparing project reports in order to claim a deduction for amortisation of preliminary expenditure.
1. Amortisation of certain preliminary expenses incurred prior to the start of a business or after the start of a business in connection with the extension of an undertaking or the establishment of a new unit is permitted under Section 35D of the Income Tax Act. This includes the cost of creating a feasibility report, a project report, and other documents.
2. According to Section 35D, work related to the preparation of a feasibility report or a project report, the conduct of a market survey or any other survey, or the provision of engineering services must be performed by the assessee or a company approved by the Board. This requirement poses numerous challenges to the successful implementation of new projects.
3. To simplify the process of claiming amortisation for these preliminary expenses, Finance Bill 2023 proposes to amend section 35D of the Income Tax Act to remove the requirement of incurring expense on conducting such activities through companies that have been pre-approved by the Board.
4. As part of the measures to ease compliance, the assessee will only be required to provide a statement containing the specifics of this expenditure in the prescribed form and manner following the implementation of the aforementioned proposed amendment.
5. This amendment will become effective on April 1, 2024, and will apply to assessment years 2024-25 and onwards.
Finance Bill, 2023: Union Budget India 2023-24