Amortization of Intangibles under Section 24
Amortization of Intangibles under Section 24: Amortization deduction is allowed under section 24 for the cost of a person’s intangibles that have a normal useful life exceeding one year and that are wholly or partly used by the person in the tax year in deriving income from business chargeable to tax.
Amortization deduction for a tax year is computed by dividing the cost of the intangible over normal useful life of the intangible in whole years.
Prior to the Finance Act, 2019, sub-section (4) of section 24 stated that where an intangible had a normal useful life of more than ten years or where its useful life was not ascertainable, it was treated to have a normal useful life of 10 years.
Through the Finance Act, 2019, sub-section (4) of section 24 has been substituted to the effect that an intangible shall now be amortized over its actual normal useful life which can extend beyond ten years also. Further, where the normal useful life is not ascertainable, the intangible shall be treated to have a normal useful life of 25 years. The term, “intangible” has been defined in sub-section (11) of section 24.
Through the Finance Act, 2019, self-generated goodwill or any adjustment arising on account of accounting treatment as may be prescribed in rules has been excluded from the definition of “intangible”.