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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Meridian Pharma Ltd incurs capital expenditure of ₹10,00,000 bona fide to promote family planning among its employees. Under section 32(i) of the official text, what amount is deductible in the tax year of incurring and in each of the next four tax years respectively?

The company gets ₹2,00,000 in the year of spending and ₹2,00,000 in each of the next four tax years. Capital family planning expenditure is allowed as one-fifth in the year incurred, with the balance in four equal instalments, so ₹10,00,000 is fully deducted over five years.

  1. A₹10,00,000 in the first year and nil later
  2. B₹2,00,000 in the first year and ₹2,00,000 in each of the next four yearsCorrect
  3. C₹2,00,000 in the first year and ₹2,00,000 only in the next two years
  4. D₹5,00,000 in the first year and ₹1,25,000 in each of the next four years

Explanation

For capital expenditure, one-fifth is deducted in the year incurred: 10,00,000 / 5 = ₹2,00,000. The balance ₹8,00,000 is deducted in equal instalments over the four immediately succeeding years, i.e. ₹2,00,000 each. Total = ₹10,00,000. The option giving ₹5,00,000 first does not follow the one-fifth rule.

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