Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Depreciation (Section 2(11), 32, 38, 43, 50 )
Depreciation (Section 2(11), 32, 38, 43, 50 ) | Fast Track Quick Revision Income Tax - Taxation PDF Download
| Section 2(11). Block of Asset | |
| The term ‘block of assets’ means a group of assets falling within a class of assets in respect of which same percentage of depreciation is prescribed. (Similar assets having same rate of depreciation). |
| Eligible assets and its rate of depreciation | |||
| Asset | Full rate of depreciation | ||
| 1. | Building. It means superstructure only and does not include site | ||
| a. | General | 10% | |
| b. | Residential Building | 5% | |
| c. | Hotel Building | 10 % | |
| d. | Temporary Building | 100% | |
| 2. | Furniture or fittings including electrical fittings | 10% | |
| 3. | Plant & Machinery [S 43(3)] |
“Plant” includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. It does not include tea bushes or livestock or buildings or furniture and fittings. | |
| a. | General | 15% | |
| b. | Motor Vehicle | 15% | |
| c. | Annual books used by professional | 100% | |
| d. | Other books used by professional | 60% | |
| e | Any books used in business | 15% | |
| f. | Computer including software | 60% | |
| g. | Ships | 20% | |
| h. | Aeroplane and aero engines | 40% | |
| i. | Pollution control equipment | 100% | |
| 4. | Intangible Assets | Know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature (Brokership rights and goodwill of business) [KPCTLF b/c r] | |
| Half rate of depreciation |
| Asset is purchased and put to use in the same previous year for less than 180 days. |
| Nil depreciation if | |
| 1. | Closing WDV is nil or negative; or |
| 2. | BOA do not exists |
| Section 32. Conditions for claiming depreciation | |
| 1. | Asset is owned wholly or partly by the assessee. |
| 2. | Asset is put to use in the relevant previous year. |
| 3. | Asset is put to use for the purpose of business or profession. |
| It is mandatory to claim depreciation. In passive use depreciation is available. | |
| Section 43(6). Computation of depreciation |
| Opening WDV + Purchase of assets (Actual Cost) – Sale of assets = Closing WDV – Depreciation = Opening WDV |
| Section 43(1). Actual Cost |
| Invoice Price – Subsidy + Duties and taxes if credit not claimed + Transportation Cost + Insurance of asset + Training of employees + Interest till the asset is put to use + Travelling expenses incurred by employees for making survey of asset. |
| Sale of asset / Destruction of asset |
| Money value of asset / Insurance claim received shall be deducted from opening WDV. |
| Section 50. Computation of Capital Gain in case sale of depreciable asset |
| In case when depreciation becomes nil capital gain arises. (always STCG) Computation : Sale consideration – Opening WDV – Purchase of asset – Transfer expenses = STCG |
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FAQs on Depreciation (Section 2(11), 32, 38, 43, 50 ) - Fast Track Quick Revision Income Tax - Taxation
| 1. What is depreciation in taxation? |  |
Ans. Depreciation, as per Section 2(11) of the Taxation law, refers to the reduction in the value of an asset over time due to wear and tear, obsolescence, or any other factor. It is a method used to allocate the cost of an asset over its useful life for tax purposes.
| 2. How is depreciation calculated for tax purposes? | |
Ans. Depreciation is calculated for tax purposes using various methods, such as straight-line method, declining balance method, or units-of-production method. The specific method used depends on the asset type and the rules set by the tax authorities. Generally, it involves dividing the cost of the asset by its useful life to determine the annual depreciation expense.
| 3. Can I claim depreciation on all assets for tax purposes? | |
Ans. No, not all assets are eligible for depreciation claims. Section 32 of the Taxation law provides a list of assets that are eligible for depreciation. These typically include tangible assets like buildings, vehicles, machinery, and intangible assets like patents and copyrights. However, land and assets that have not been used for business purposes are generally not eligible for depreciation.
| 4. What is the difference between depreciation and capital allowances in taxation? | |
Ans. Depreciation and capital allowances are both methods used to recover the cost of assets for tax purposes. However, the main difference lies in their applicability to different types of assets. Depreciation is used for fixed assets like buildings and machinery, while capital allowances are used for assets that qualify for tax relief, such as research and development expenditure or energy-saving equipment.
| 5. Can I claim depreciation on assets used for personal purposes? | |
Ans. No, depreciation can only be claimed on assets used for business or income-generating purposes. Section 38 of the Taxation law states that assets used for personal purposes are not eligible for depreciation claims. Only assets used wholly or partly for business purposes are eligible for depreciation deductions to reduce taxable income.
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