The meaning of depreciation is a reduction in the value of an asset over a period of time. A taxpayer can claim it as a valid business expense. Depreciation as per the Income Tax Act is a decrease in the value of the asset over its useful life. It can be claimed as an expense and reduced from the taxable income of the taxpayer. A taxpayer can claim it on both tangible assets and intangible assets as per the prescribed rates in the Income Tax Act.
The calculation of depreciation under Income Tax Act is different than the Companies Act. In the case of a Company, it is calculated as per the prescribed rates and methods under the Companies Act, 2013. Thus, in the case of a Company, the depreciation as per the books of accounts would be different than the amount as per the Income Tax Return.
Block of Assets mean a group of assets falling under the same category and having the same depreciation rate. Gross Block is the sum of gross value of each asset as on the beginning of the financial year. Net Block is the sum of net value of each asset at the end of the financial year after reducing the depreciation.
Gross Block – Depreciation = Net Block
The Block of Assets comprises of the following types of assets:
Calculation of Gross Block of Assets is as per the table below:
|Opening WDV as on 1st April||XXXX|
|Add||Cost of Assets purchased||XXXX|
|Less||Sale Value of Assets sold||(XXXX)|
|WDV of Block of Assets||XXXX|
|Closing WDV at the end of year||XXXX|
The taxpayer must fulfill the following conditions to claim depreciation.
The rate of depreciation for different block of assets is prescribed under the Income Tax Act.
Interest paid on money borrowed for buying a capital asset should be added to the cost of the asset till the time the asset is put to use. Once the asset is put to use, the taxpayer can claim the interest as revenue expenditure.
The Income Tax Department has prescribed rates as on the incometaxindia.gov.in. These rates are applicable AY 2003-04 onwards. You can refer to the rates as prescribed by the Income Tax Department here – Income Tax Depreciation Rates.
In addition to the normal depreciation, you can also claim Additional Depreciation at the rate 20% if the following conditions are satisfied:
The rate of additional depreciation would be 20% of the actual cost if the asset is used for 180 days or more. If the asset is used for less than 180 days, the rate would be 10%.
Shaurya is in the business of manufacturing. Here is the data of the capital assets of his business.
|Opening WDV of Plant & Machinery as on 1st April 2019||40,00,000|
|New machine purchased & put to use on 30th June 2019||15,00,000|
|New machine purchased & put to use on 1st February 2020||10,00,000|
|Computer purchased on 25th January 2020||2,00,000|
|Dep at the full rate of 15% on P&M of 40 lacs||6,00,000|
|Dep at the full rate of 15% on P&M of 15 lacs used for more than 180 days||2,25,000|
|Dep at half rate of 7.5% on P&M of 10 lacs used for less than 180 days||75,000|
|Dep at the full rate of 40% on Computer of 2 lacs||80,000|
|Dep at the full rate of 20% on new P&M of 15 lacs used for more than 180 days||3,00,000|
|Dep at half rate of 10% on P&M of 10 lacs used for less than 180 days||1,00,000|
|Opening WDV as on 1st April||40,00,000||NIL|
|Add||Cost of Assets purchased||25,00,000||2,00,000|
|Less||Sale Value of Assets sold||NIL||NIL|
|WDV of Block of Assets||65,00,000||2,00,000|
|Closing WDV at the end of year||52,00,000||1,20,000|