JKPS Ltd. is an Indian company, which sets up a new manufacturing unit. It incurs the following expenditure in connection with the manufacturing unit: Particulars Amount (₹) Preparation of project report 8,00,000 Legal a

Admissible preliminary expenditure u/s 35D of the Income Tax Act, 1961 for the assessment year 2021-22 are as under: Step No. 1: Actual Expenditure (Total of Preparation of project report and Legal and other charges for issue of additional capital required for the new unit) is ₹8,00,000 + ₹2,00,000 = ₹10,00,000 Step No. 2: 5% of the 'Cost of project' or 'Capital Employed' whichever is higher 5% of Cost of project = 5% of ₹35,00,000 = ₹1,75,000 5% of Capital employed = 5% of ₹30,00,000 = ₹1,50,000 Higher of the two = ₹1,75,000 Step No. 3: Eligible preliminary expenditure being minimum of the following: a) Actual expenditure = ₹10,00,000 b) 5% of Capital employed or Cost of project (whichever is higher) = ₹1,75,000 Minimum of (a) and (b) = ₹1,75,000 Step No. 4: Amount eligible for amortization = ₹1,75,000 (minimum of ₹10,00,000 or ₹1,75,000) Step No. 5: Amount of deduction u/s 35D for current year (till 5 years) being 1/5th of eligible amount i.e. ₹1,75,000 / 5 = ₹35,000. So, ₹35,000 is the admissible deduction to the company u/s 35D (Amortisation of Preliminary Expenses) for the assessment year 2021-22.