# Amortisation of Preliminary Expenses [Section 35D]
Section 35D lets a business spread (amortise) certain pre-commencement / expansion expenses over 5 years, instead of denying them as capital outlay.
## Applicability
- Indian companies and resident non-corporate assessees (i.e., all residents).
- Before commencement: expenses incurred before business begins are eligible.
- Expansion-related: expenses for extension of business or commencement of production in a new unit.
## Amount eligible
- Total expenditure claimed shall not exceed:
- Companies: higher of 5% of cost of project or 5% of capital employed.
- Other assessees: 5% of cost of project.
- Amortised over 5 years — 1/5th deductible each year, starting from the year of commencement/expansion.
- The expenditure cannot be deducted again under any other section for the same or any other year.
- Deduction allowed only if accounts are audited before the due date u/s 139(1).
## Eligible expenses
For all assessees:
- Feasibility / project report preparation.
- Market or other surveys essential for the business.
- Engineering services related to business setup.
- Legal charges for agreements relating to setting up the business.
Additionally for companies:
- Legal charges for drafting the MOA and AOA.
- Printing of MOA and AOA.
- Incorporation fees under the Companies Act.
- Costs of issuing shares/debentures — underwriting commission, prospectus expenses (flotation costs).
## Procedural requirement
- The assessee must furnish a statement of expenditure within 1 month before the due date for filing the return u/s 139(1).
## Key definitions
- Cost of the Project: actual cost of fixed assets as shown in the books on the last day of the previous year in which the business commences or extension happens.
- Capital Employed: total of issued share capital + debentures + long-term borrowings as on the last day of the previous year of commencement/extension.