# Section 35D: Preliminary Expenses
Expenses incurred before the commencement of business (or in connection with extension of an undertaking / setting up a new unit) are often capital-flavoured but have no tangible asset to attach to. Section 35D allows them to be amortised.
## Who Can Claim?
Resident assessees only (Indian companies, resident firms, individuals etc.).
## Eligible Preliminary Expenses
1. Preparation of feasibility study or project report
2. Conducting market survey or any other survey necessary for the business
3. Engineering services relating to the business
4. Legal charges for drafting agreements, etc.
5. Drafting & printing of MOA / AOA
6. Expenses on public issue of shares & debentures (underwriting commission, brokerage, etc.)
## Quantum of Deduction
### Indian Company
| Limb | Detail |
|---|---|
| (i) Actual qualifying expenses | xxx |
| (ii) 5% of higher of: (a) Cost of project, (b) Capital employed | xxx |
Deduction = LOWER of (i) and (ii)
### Other Resident Assessee (non-corporate)
| Limb | Detail |
|---|---|
| (i) Actual qualifying expenses | xxx |
| (ii) 5% of Cost of project | xxx |
Deduction = LOWER of (i) and (ii)
Note: Non-company assessees don't get to use 'Capital Employed'.
## Amortisation Period
Deduction is spread over 5 equal annual installments, starting from the year of commencement (or year of completion of the extension/new unit).
## Key Definitions
- Cost of Project = Amount invested in fixed assets for the new project.
- Capital Employed = Share capital + Debentures + Long-term borrowings for the new project.
- Reserves & Surplus are NOT included.
## Audit Requirement for Non-Companies
For an assessee other than a company or co-operative society, deduction under Sec 35D is only allowed if the accounts have been audited under Sec 44AB for that year.