Section 44 of the Income-tax Act, 2025 — Amortisation of Certain Preliminary Expenses (Successor to Section 35D)

In plain language

What Section 44 actually means

When you start a new business — or expand an existing one — you spend money before the business actually earns anything: feasibility reports, project reports, market surveys, legal drafting, company registration fees and so on. These are called preliminary expenses. Normally such "pre-commencement" spending is capital in nature and would not be deductible at all. Section 44 of the Income-tax Act, 2025 is a special relief that lets you claim these costs — but not all at once. Instead, you write them off (amortise) in five equal instalments of one-fifth each, over five successive tax years.

Section 44 is the direct successor to the old Section 35D of the Income-tax Act, 1961. The substance is largely carried forward; the 2025 Act simply modernises the language and consolidates the rules.

Who can claim it

• An Indian company, and
• A resident non-corporate assessee (a resident individual, HUF, firm, LLP etc.).

Non-residents and foreign companies are not eligible. This mirrors the eligibility under the old Section 35D.

Which expenses qualify

• Feasibility reports, project reports and market surveys (or any report/survey) in connection with the business.
• Engineering services relating to the business.
• Legal charges for drafting any agreement relating to setting up or conducting the business.
• Company-only items: legal charges for drafting the Memorandum and Articles of Association, printing of the MoA/AoA, company registration fees under the Companies Act, and — where shares or debentures are issued to the public — underwriting commission, brokerage and the cost of drafting, typing, printing and advertising the prospectus.
• Any other item that may be prescribed.

The 5% ceiling — the most important limit

You cannot amortise unlimited amounts. The total qualifying expenditure is capped at 5% of:

• the cost of the project (broadly, the actual cost of fixed assets — land, buildings, plant and machinery — as on the last day of the relevant tax year), OR
• for a company, at the company's option, 5% of the "capital employed" (issued share capital, debentures and long-term borrowings).

Anything spent above this 5% ceiling is simply ignored — it is neither deductible under Section 44 nor generally deductible elsewhere.

Audit requirement for non-company taxpayers

A non-corporate assessee (individual, HUF, firm) claiming this deduction must get the accounts of the year(s) in which the expenditure was incurred audited by a Chartered Accountant and furnish the audit report in the prescribed form (this was Form 3AE under the 1961 Act) by the specified date. Companies already file audited accounts, so no separate report is needed from them.

How it interacts with other sections

• No double deduction: if an expense is allowed under Section 44, the same expense cannot be claimed again under any other provision of the Act, in that year or any other year.
• Amalgamation / demerger: if the undertaking is transferred in an amalgamation or demerger before the five years end, the successor (amalgamated / resulting) company continues the remaining instalments as if no transfer had happened. No benefit is lost.

Practical implications

• Maintain a clear file of invoices for every preliminary expense and tag them to "pre-commencement" or "expansion".
• Compute the 5% ceiling early — for a small business the ceiling often bites, so track it before assuming the full spend is deductible.
• The deduction begins in the year the business commences (or, for expansion, the year the new unit becomes operational), not the year you spent the money.
• Because it is spread over 5 years, the benefit is modest each year — plan cash flow accordingly.