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*WDV = Written down Value of block of asset

DEPRECIATION
RAHUL PODDAR
1
Tax Provisions
2
Block of Assets
3
Asset Exist but No WDV*
4
No Asset Exist but WDV* exists
5
Building does not include Land
6
50% Depreciation Case
DEPRECIATION
7
Additional Depreciation
8
Unabsorbed Depreciation
For claiming depraciation, an assessee has to fulfil the following conditions:
> OWNERSHIP CRITERIA:
The asset should be owned by the assessee. Where, however an assessee carries on business or profession in a
not owned by him but taken on lease, he is entitled to deprection in respect of the capital expenditure incurred
by him on the construction of any structure or any work in relation to the building for improvement, renovation
or extension.
> USE OF ASSET CRITERIA:
Asset must be used for business. Where the asset is used partly for business and partly for personal purpose, a
reasonable proportion of the depreciation attrubutable to the business user of the asset is allowed.
> ASSET ELIGIBLE FOR CLAIMING DEPRECIATION:
TANGIBLE ASSETS >>>>>>>> BUILDING , MACHINERY , PLANT or FURNITURE
INTANGIBLE ASSETS >>>>>>>> KNOW-HOW, PATENTS , COPYRIGHTS, TRADEMARKS ,
acquired after 31-03-1998
LICENCES, FRANCHISES , SUCH SIMILAR RIGHTS.
NOTES:-
1. Depreciation is available even in respect of a fractional ownership of an asset.
2.Depreciation will be available whether the assessee has claimed, the deduction for depreciation
while computing his total income.
3.For Claiming depreciation under Hire Purchase , following points need to be satisfied:
>> The agreement for hire purchase must show that as long as hirer discharges his obligations
he has an uninterrupted rights over the assets for all practical purposes.
>> The seller will eventually lose all rights, title & interest in asset once hirer fulfills its
obligations.
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D E P R E C I A T I O N
Tax Provision u/s 32 of the Income Tax Act
For claiming depraciation, an assessee has to fulfil the following conditions:
The asset should be owned by the assessee. Where, however an assessee carries on business or profession in a
not owned by him but taken on lease, he is entitled to deprection in respect of the capital expenditure incurred
by him on the construction of any structure or any work in relation to the building for improvement, renovation
Asset must be used for business. Where the asset is used partly for business and partly for personal purpose, a
BUILDING , MACHINERY , PLANT or FURNITURE
KNOW-HOW, PATENTS , COPYRIGHTS, TRADEMARKS ,
LICENCES, FRANCHISES , SUCH SIMILAR RIGHTS.
2.Depreciation will be available whether the assessee has claimed, the deduction for depreciation
The agreement for hire purchase must show that as long as hirer discharges his obligations
D E P R E C I A T I O N
Tax Provision u/s 32 of the Income Tax Act
Section 2(11) defines 'block of assets' to mean agroup of assets falling within a class of assets.
A taxpayers may have 13(Thirteen) different bloack of assets as given below:
Block
1
2
3
4
5
6
7
8
9
10
11
12
13
Plant & Machinery - Containers made of glass or plastic used as refills, plant and machinery
which satisfy conditions of rule 5(2) and new commerica; vechicle which is acquired during
Janyaru 1, 2009 and September 30, 2009 and is put to use before October 1, 2009 for the purpose
of business or profession
Plant & Machinery - Computers including computer software. It includes books (other than
annual publication) owned by a professional. It also includes gas cylinders, plant used in field
operations by mineral oil concerns, direct fire glass melting furnaces
Plant & Machinery - Energy saving devices; renewal energy devices, rollers in flour mills; sugar
works and steel industry
Plant & Machinery - Air pollution control equipment; water pollution control equipments; solid
waste control equipments; recycling & resource recovery systems; wooden parts used in artifical
silk manufacturing machinery; cinematograph films; bulbs of studio lights; wooden match frames;
some plants used in mines,quarries,and salt works; and books ( being annual publication) owned
by assessee carrying on profession or books (may or may not be annual publication) carrying on
business in running lending libraries
Intangible Assets - Know how, patents, copyrights, trade marks, licences, franchies and any other
business or commerical rights of similar nature
Furniture - Any furniture/fittings including electrical fittings
Plant & Machinery - Any plant or machinery (not covered by bloack 6,7,8,9,10,11 or 12) and
motor cars ( other than those used in a business of running them on hire) acquired or put to use on
and after April 1 , 1990
Ocean-going ships, vessels ordinarily operating on inland water including speed boats
Plant & Machinery - Buses, lorries, and taxies used in the business of running them on hire,
machinery used in semi conductor industry, moulds used in rubber and plastic goods factories.
Plant & Machinery - Aeroplanes
Buildings -
a. building acquired on or after September 1, 2002 for installing machinery and plant
forming part of water supply project or water treatment system and which is put to use for
the purpose of business of providing infrastructure facilities under clause (i) of sub
section (4) of section 80-IA;
b. temporary erection such as wooden structures
block of asset
Buildings - Residential buildings other than hotels and boarding houses
Buildings - Office, factory, godowns or buildings which are not mainly used for residential
purpose [ covers hotels and boarding houses but does not cover those under block 1 and
block 3 ]
Nature of Asset
Rate
5%
10%
100%
10%
15%
20%
30%
40%
50%
60%
80%
100%
25%
block of asset
Opening value of block of Asset ( A & B) 80,000
Add: Purchase of new plant C 30,000
110,000
Less: Sale of Plant A
[plant A is sold at Rs. 180000 but the amount of 110,000
reduction cannot exceed Rs.110000, the difference
of Rs. 70000 is short term capital gain u/s 50(1)]
WDV of block consisting of Plant B & C Nil
In such case no depreciation is admissible where WDV has been reduced to zero
through the block of asset exist on the last day of previous year.
Asset Exist but No WDV
ILLUSTATION
Opening value of block of Asset ( A & B) 237,000
Add: Purchase of new plant C 20,000
257,000
Less: Sale of Plant A, B & C
[Block of Asset does not contains any Asset] 49,000
WDV of block (empty) 208,000
WDV of block for next year Nil
In such case no depreciation is admissible as the block of assets cease to exist on
the last day of the previous year. Rs. 208000 will be treated as short term capital
loss on sale of plants.
Depreciated value of the block on the first day of the next previous year will be NIL
No Asset but WDV Remains
ILLUSTATION
Building Does not include land
Building does not include land it means the super structure . Where the sale deed does not indicate the price of
land and building seperately , then the full purchase price is eligible for depreciation. But if the sale deed
indicates the price of land and building seperately then depreciation is available only for building.
Building Does not include land
Building does not include land it means the super structure . Where the sale deed does not indicate the price of
land and building seperately , then the full purchase price is eligible for depreciation. But if the sale deed
indicates the price of land and building seperately then depreciation is available only for building.
Where any asset is acquired in the previous year and is put to use for the purpose of business or
profession for a period of less than 180 days, then the depreciation in respect of such asset is allowable
up to 50% of the amount calculated at the percentage prescribed.
Month APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR
Days 30 31 30 31 31 30 31 30 31 31 28 31
DD MM YYYY
1 12 2008
Depreciation Status:
Date of Purchase
No of Day Used 120
50% Depreciation
Where asset is used for < 180 days
DAY CALCULATOR
Please change the days
whereever necessary
Where asset is used for < 180 days
Please change the days
whereever necessary
For Claiming Additional Depreciation following conditions need to be satisfied:
1
2 New Plant or Machinery is acquired and installed after 31st, March 2005
3 It should be eligible plant & machinery. The following are not eligible:
a. ships and aircrafts
b.
c. any office appliances or road transport vechicle.
d.
Few points of considerations:
1 Additional deprecation rate is 20% of the actual cost
2 If asset put to use of less than 180 days then the rate will be 10%
3 It is onlu available in the year when it is first put to use.
ADDITIONAL DEPRECIATION
Assessee must be engaged in the manufacturing or production of any article or thing (priority/non priority
sepecified in ELEVENTH SCHEDULE).
VIEW ELEVENTH SCHEDULE
any machinery or plant which is installed in any office premises or any residential
accommodation, or accomodation in the nature of a guest house.
any machinery or plant, the whole of the actual cost of which is allowed as deduction(
whether by way of depreciation or otherwise) in computing the income chargeacle under
the head "Profits and gains from business or profession" of any one previous year.
ADDITIONAL DEPRECIATION
Assessee must be engaged in the manufacturing or production of any article or thing (priority/non priority
sepecified in ELEVENTH SCHEDULE).
VIEW ELEVENTH SCHEDULE
any machinery or plant which is installed in any office premises or any residential
accommodation, or accomodation in the nature of a guest house.
any machinery or plant, the whole of the actual cost of which is allowed as deduction(
whether by way of depreciation or otherwise) in computing the income chargeacle under
the head "Profits and gains from business or profession" of any one previous year.
4. Tooth paste, dental cream, tooth powder and soap.
6. Confectionery and cholocates.
9. Cinematograph films [ wef 01-04-1989 excluded] and projectors.
24. Safes, strong boxes, cash and deed boxes and strong room doors.
27. Crown, corks, or other fittings of cork, rubber, polythyelene or any other material.
28. Pilfer-proof caps for packaging or other fittings of cork, rubber, polyethylene or any
other material.
1. Beer, Wine and other alcoholic spirits.
3. Cosmetics and toilet preparations.
7. Gramophones, including record-players and gramophone records.
10. Photographics apparatus and goods.
23. Steel furniture, whether made partly or wholly of steel.
25. Latex from sponge and polyurethane foam.
ELEVENTH SCHEDULE AS PER INCOME TAX ACT
2. Tobacco and tobacco preparations, such as , cigars and cheroots, ciagrettes, biris,
smoking mixtures for pipes and cigarettes, chewing tobacco and snuff.
5. Aerated water in the manufacture of which blended flavouring concentrates in any form
are used. (For this purpose blended flavouring concentrates shall include synthetics
essences in any form)
22. Office machines and apparatus, such as , typewriters, calculating machines, cash
registering machines, cheque writing machines, intercom machines, teleprinters.
1
2
3
STEPS OF PRIORITY FOR SET OFF
a Current Depreciation
b Brought Forward loss
c Unabsorbed Depreciation
UNABSORBED DEPRECIATION
Unabsorbed depreciation means the depreciation which remained unclaimed in the previous year because of lack of
profits, certain point in this regards as as follow:
Depreciation unclaimed in the previous year is first allowed to set off from income chargeable under the head
"Profits and gaings from businedd and profession".
If the balance is still unabsorbed then it shall be adjusted with income chargeable under others heads of income
(except income under the head "Salaries") for the same AY
If the balance still exists, then it can be carried forward to the subsequent assessment years for indefinite
period.
UNABSORBED DEPRECIATION
Unabsorbed depreciation means the depreciation which remained unclaimed in the previous year because of lack of
profits, certain point in this regards as as follow:
Depreciation unclaimed in the previous year is first allowed to set off from income chargeable under the head
"Profits and gaings from businedd and profession".
If the balance is still unabsorbed then it shall be adjusted with income chargeable under others heads of income
(except income under the head "Salaries") for the same AY
If the balance still exists, then it can be carried forward to the subsequent assessment years for indefinite
period.