Section 44
Section 44: amortisation of preliminary expenses
Section 44 allows an Indian company, or any other resident person, to spread ("amortise") certain specified preliminary expenses - incurred either before a business commences or in connection with extending an existing undertaking or setting up a new unit - over five successive tax years, subject to a cap.
Who can claim, and over what period
Section 44(1) allows an Indian company, or a resident person other than a company, to deduct one-fifth of the specified expenditure in each of five successive tax years, starting from the year the business commences (for pre-business expenditure) or the year the extension/new unit is completed and commences production/operation (for expansion expenditure).
What expenditure qualifies
Section 44(2) lists the qualifying expenditure:
- Preparation of a feasibility report, project report, market survey or other necessary survey, and engineering services relating to the business.
- Legal charges for drafting agreements relating to setting up or conducting the business.
- For companies specifically: legal charges for drafting/printing the Memorandum and Articles of Association, company registration fees under the Companies Act, 2013, and expenditure on issuing shares/debentures to the public (underwriting commission, brokerage, and drafting/typing/printing/advertising the prospectus).
- Any other prescribed items of expenditure not otherwise eligible for deduction under the Act.
The 5% ceiling
Section 44(4) caps the allowable deduction at 5% of the "cost of the project", or, at the option of an Indian company, 5% of the "capital employed in the business of the company" - both terms are defined in Section 44(5) with reference to fixed assets and issued share capital/debentures/long-term borrowings as on the relevant date.
Audit requirement for non-corporate assessees
Section 44(6) requires that, for an assessee other than a company or co-operative society, the accounts for the year(s) the expenditure was incurred must be audited by an accountant before the specified date under Section 63, and the audit report must be furnished in the prescribed form for the first year the deduction is claimed.
Amalgamation and demerger continuity
If an Indian company's undertaking (entitled to this deduction) is transferred in a scheme of amalgamation or demerger before the five-year period expires, no deduction is allowed to the amalgamating/demerged company for the transfer year, and the provisions continue to apply to the amalgamated/resulting company as if the reorganisation had not occurred (Section 44(7) and (8)).
Section 44(9) confirms that once a deduction is claimed and allowed under this section for a given expenditure, no deduction for the same expenditure can be claimed under any other provision of the Act.
Frequently asked questions
Over how many years can preliminary expenses be amortised?
Five successive tax years, at one-fifth of the qualifying expenditure per year, starting from the year the business commences (or, for expansion expenditure, the year the extension/new unit is completed).
Is there a cap on how much preliminary expenditure can be deducted?
Yes - the total qualifying expenditure eligible for this amortisation is capped at 5% of the "cost of the project", or, at an Indian company's option, 5% of the "capital employed in the business of the company".
Do non-corporate businesses need an audit to claim this deduction?
Yes - under Section 44(6), an assessee other than a company or co-operative society must have its accounts audited by an accountant before the specified date, and furnish the audit report for the first year the deduction is claimed.
Related sections
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Plan your preliminary expense amortisation with our tax teamLast updated 9 September 2026