The eligible pool comes before the instalment
Section 44 of the Income-tax Act, 2025 allows qualifying preliminary expenses in five equal instalments, subject to its conditions and ceiling. This article, checked on 28 October 2026, addresses a new eligible Indian-company cohort starting in tax year 2026–27. It does not apply new section numbers to FY 2025–26 / AY 2026–27 returns. A book description such as incorporation costs or deferred expenses does not establish tax eligibility. Confirm that the selected tax regime permits the claim before using the models. Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Establish both the expenditure and project event
Subsection (1) covers expenditure before business commencement or, after commencement, in connection with extension of the undertaking or setting up a new unit. Instalments begin with business commencement, completion of the extension, or commencement of production or operation of the new unit, as applicable. An invoice paid earlier does not by itself start the five-year clock. Preserve commencement evidence and maintain separate pools for genuinely different qualifying events. Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Classify invoices under subsection (2)
The specified categories include feasibility and project reports, necessary surveys, engineering services and the stated agreement-drafting legal charges. Additional company categories cover memorandum/articles drafting and printing, company registration fees and the specified public-subscription issue costs. A private placement is not automatically a public subscription. General advertising, staff training or every professional invoice cannot enter the pool merely because incurred before launch. Separate prescribed additional categories from expressly listed costs and verify the required expenditure statement under subsection (3). Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Apply the ceiling to the aggregate pool
Subsection (4) restricts the aggregate eligible expenditure using 5% of project cost, or, at an Indian company's option, capital employed. Apply the ceiling before computing one-fifth instalments; do not give each invoice its own fresh limit. Subsection (5) defines both bases and their measurement dates. For an extension or new unit, only the specified connected assets or connected financing enter the relevant base. Existing unrelated company assets cannot silently inflate a new-unit ceiling. Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Capital employed is a defined amount
The statutory base comprises the specified issued share capital, debentures and long-term borrowings, measured at the relevant tax-year end. It is not automatically total equity plus all liabilities. The long-term-borrowing definition distinguishes borrowings from the stated institutions from the particular foreign capital-plant-and-machinery borrowing limb with its seven-year tenure condition. The examples stipulate independently verified statutory bases and do not assume every commercial loan qualifies. Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Keep tax amortisation separate from book expense
Reconcile the amount charged in accounts, the eligible tax pool, ceiling restriction and current instalment. Subsection (9) prevents a second deduction elsewhere for expenditure claimed and allowed under this section. Subsections (7) and (8) provide specified amalgamation and demerger continuity; they do not restart five fresh years. Subsection (6)'s additional audit/report population expressly excludes companies and co-operative societies, while subsection (3)'s expenditure statement remains a distinct question. Do not invent a form number or treat the non-company condition as universal. Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9).
Applicable primary references
Income-tax Act, 2025 as amended by Finance Act 2026: section 44(1)–(9)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Pool below the ceiling
Assume verified eligible expenditure ₹3,00,000 and statutory project cost ₹1,00,00,000. The 5% ceiling is ₹5,00,000. Restricted pool remains ₹3,00,000; each of five instalments is ₹60,000.
Illustrative example 2: Pool above the ceiling
Assume eligible expenditure ₹8,00,000 and project cost ₹1,00,00,000. The restricted pool is ₹5,00,000 and annual instalment ₹1,00,000. Excess ₹3,00,000 does not automatically become a sixth-year claim.
Illustrative example 3: Company chooses a supported capital base
Assume eligible expenditure ₹8,00,000, project cost ₹1,00,00,000 and independently verified capital employed ₹1,50,00,000. The two ceilings are ₹5,00,000 and ₹7,50,000. With a valid company option for the latter, annual instalment is ₹1,50,000.
Illustrative example 4: Exclude unrelated extension assets
Assume total fixed assets ₹4,00,00,000 but the verified connected extension-project cost is ₹80,00,000. Its project-cost ceiling is ₹4,00,000, not ₹20,00,000. Eligible expenditure of ₹6,00,000 gives annual deduction ₹80,000 on that base.
Illustrative example 5: Book-to-tax adjustment
Assume draft profit ₹20,00,000 already deducts ₹5,00,000 expenditure, all within a valid restricted pool. Add back ₹5,00,000 and deduct the ₹1,00,000 current tax instalment: profit becomes ₹24,00,000 before other adjustments.
Illustrative example 6: Preserve the original cohort
An eligible ₹5,00,000 restricted pool commencing in 2026–27 gives five ₹1,00,000 instalments through 2030–31. After two instalments, ₹3,00,000 remains over three years; a qualifying continuity event does not turn it into another five-year ₹1,00,000 schedule.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm taxpayer and regime | Indian-company eligibility and deduction availability |
| 2 | Identify the qualifying event | Commencement, extension completion or new-unit operation |
| 3 | Classify every invoice | Subsection (2) categories and unsupported-cost exclusions |
| 4 | Check the statement requirement | Subsection (3) prescribed particulars and filing evidence |
| 5 | Measure project cost | Specified fixed assets at the required date |
| 6 | Measure optional company capital base | Issued capital, debentures and qualifying borrowing evidence |
| 7 | Apply the aggregate ceiling | 5% comparison before amortisation |
| 8 | Build annual cohorts | Restricted pool, first year and five equal instalments |
| 9 | Reconcile books and tax | Current expense, add-back and current deduction without duplication |
| 10 | Check continuity and close balances | Transfer facts, remaining years and prior claims |
Sixteen practitioner FAQs
1. Which period is covered?
A new tax-year 2026–27 cohort under the 2025 Act.
2. Does a foreign company qualify merely because it has Indian costs?
Section 44 specifies an Indian company or the stated resident non-company person.
3. Is every pre-opening cost eligible?
No. Map it to subsection (2) and the qualifying event.
4. Can an existing business claim for routine expansion spending without analysis?
The statutory undertaking-extension or new-unit connection must be established.
5. When does the pre-commencement cohort begin?
The tax year business commences, under subsection (1).
6. When does an extension cohort begin?
The year the extension is completed, as specified.
7. Is the annual deduction 5% of project cost?
The 5% restriction limits the pool; the annual instalment is one-fifth of the restricted pool.
8. Does each invoice receive a separate ceiling?
No. Apply the aggregate restriction.
9. Can an Indian company consider capital employed?
Yes, at its option, using the statutory definition.
10. Can retained earnings simply be added to that base?
Do not replace the defined components with general net worth.
11. Do unrelated assets enlarge a new-unit project base?
The subsection (5) connection restriction must be applied.
12. Are all borrowings automatically qualifying long-term borrowings?
No. Apply the definition and relevant limb.
13. Does private-placement spending automatically satisfy the public-subscription category?
No. Establish the stated category rather than assuming equivalence.
14. Does subsection (6) impose the same extra report on every company?
No. Its stated population excludes companies and co-operative societies.
15. Can a qualifying merger restart five years?
The continuity provisions preserve the existing statutory position.
16. Can an allowed cost be deducted elsewhere as well?
Subsection (9) prevents the covered double deduction.
Conclusion
Build the eligible preliminary-expense pool before applying the project-cost or company-capital ceiling and allocating five annual instalments.