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Provision for construction of office at a future date.

vijay (Engineer) (17 Points)

27 March 2023

The company wishes to build and office space on leased land with an estimated cost of XX Cr.
Every year the company wishes to set aside a part of its revenue towards this expense.

Is the money set aside in the provision for construction account taxable?

What percentage of its income can the company set aside in this account?

For how many years can this account be maintainer?

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1 Replies

CA Rakesh Ishi (Working at Private Company) (8202 Points)
Replied 27 March 2023

There is no specific percentage of income that a company can set aside in a provision for construction account. The amount of provision that can be made would depend on various factors such as the estimated cost of construction, the financial position of the company, and the provisions of the Companies Act, 2013.

If the provision for construction account is created to cover future expenses related to the construction of an office, and the expenses are expected to be incurred within the next financial year, then the provision may be allowed as a deductible expense under the provisions of Section 37(1) of the Income Tax Act.

However, if the provision for construction account is created to cover future expenses that are not expected to be incurred within the next financial year, or if the provision is created for any other purpose, then the tax treatment may differ, and it is recommended that you seek professional advice from a qualified tax consultant or chartered accountant.