Friday, October 2, 2015

Depreciation in Income tax

Also Read
Fixed Assets Management: Standard Operating Procedures

  1. Depreciation is to be calculated on block of assets [Sec. 2(11)]; 
  2. Depreciation shall calculated on WDV method [Sec. 43(6)]; 
  3. SLM is optional for power generation and/or distribution units [Sec. 32(1)]; 
  4. Actual cost is base, i.e. the purchase price plus capital additions, including certain installation expenses [Sec. 43(1)]; 
  5. If an assets is sold, discarded, demolished or destroyed, depreciation base is to be reduced to the extent of the amount realised upon the sale, if any [Sec. 32(1)]; 
  6. Capital assets purchased for in-house scientific research are eligible for weighted deduction shall be treated separately [Section 35(2AB)]; 
  7. Preliminary outlays for project or feasibility reports (limited to 5% of the cost of the project or capital employed) may be amortized over a period of five years from the commencement of the business [Sec. 35D]; 
  8. For succession in business and amalgamation of companies, depreciation is allowed to the predecessor and the successor, or the amalgamating and amalgamated company, based on the number of days each used the assets [proviso to Sec. 32(1)]; 
  9. If the asset has been sold and leased-back, the actual cost for computing the depreciation allowance is the written down value to the seller at the time of transfer [Explanation 4A to Sec. 43(1)].

  1. Depreciation is calculated at 50% of the normal rates if an asset is used for less than 180 days  in the first year [proviso to Sec. 32(1)(ii)]; 
  2. 20% additional depreciation on new P&M acquired on or after April 1, 2005 on actual cost [Sec. 32(iia)]; 
  3. 20% additional depreciation extended to power sector wef FY2012-13; 
  4. Additional depreciation is 35% instead 20% for new units commences on or after 01-04-2015 in notified backward areas of states of AP, Telangana, Bihar, and WB [first proviso to Sec. 32(1)(iia)]; 
  5. The balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year [second proviso to Sec. 32(1)(ii)]; 
  6. Depreciation is allowed @ 100% for buildings acquired after Sep 1, 2002 for installing plant or machinery forming part of water supply projects or water treatment systems put to use as infrastructural facilities u/s 80-IA (4)(i) [App I of IT Rules].
Also Read
Fixed Assets Management: Standard Operating Procedures


If closing WDV of the block is negative:
Treat the amount as short term capital gains (STCG) [Sec. 50]; 

If closing WDV is positive but there are no assets in the block 
  • Treat the amount as short term capital loss;
  • No Depreciation will be available even though the WDV is positive. 
If closing WDV is positive and there are assets in the block
  • Do not calculate profit or loss but provide depreciation on (E) 
  • If E > C 
                  Depreciation = Rate of depn. x [(A+B-D) + 50% C] 
  • If E < C 
                 Depreciation = Rate of depn. x 50%  E.

Also Read
Fixed Assets Management: Standard Operating Procedures


Post a Comment

Copyright © 2015 accounting tally taxation tutorials All Right Reserved
Subscribe by Email Get Free Updates
Don't Forget To Join US Our Community