DEPRECIATIONMODULE - III

WHY DEPRECIATION IS ALLOWEDWHY DEPRECIATION IS ALLOWED

To arrive at real business profit.To arrive at real business profit.To determine the book value of To determine the book value of

asset in a given period of time.asset in a given period of time.To know the real position of To know the real position of

assets in order to arrange for its assets in order to arrange for its replacements or renewal after a replacements or renewal after a period of time.period of time.

WHEN AN ASSESSEE CAN CLAIM WHEN AN ASSESSEE CAN CLAIM DEPRECIATION?DEPRECIATION?

Asset should be owned by the Asset should be owned by the assessee.assessee.

Asset should be used for the Asset should be used for the purpose of business or profession.purpose of business or profession.

Asset should be used during the Asset should be used during the current previous year 2012 – ’13.current previous year 2012 – ’13.

Depreciation can be claimed for Depreciation can be claimed for tangible and intangible assets.tangible and intangible assets.

BLOCK OF ASSETSBLOCK OF ASSETS

It refers to those assets, which comes under the same category with the same rate of depreciation.

Example Tangible assets with same rate of depreciation

will be considered as a block. Intangible assets with same rate of depreciation

will be considered as block.AssetsAssets Rate of DepreciationRate of Depreciation

Buildings 10

Plant & Machinery 25

Patents (Purchased After 1-4-98)

25

METHODS OF CALCULATING METHODS OF CALCULATING DEPRECIATIONDEPRECIATION

Block of Assets.Block of Assets. Actual Cost Basis.Actual Cost Basis. Written Down Value BasisWritten Down Value Basis

RATES OF DEPRECIATION FOR TANGIBLE RATES OF DEPRECIATION FOR TANGIBLE & INTANGIBLE ASSETS& INTANGIBLE ASSETS

Tangible Assets Buildings

Building used for Residential Purpose – 5% Building – Water Supply Project – 100% Building other than above Two – 10%

Furniture & Fittings – 10% Plant & Machinery – 15% Car after 01/04/1990 – 15% Aeroplanes – 40% Buses, lorries and taxies – 30% Computers (for Business point of view) – 60% Books – Annual publication / Give it to business or

profession – 100% Publication of books other than business – 60% Ships – 20%

TREATMENT FOR INTANGIBLE TREATMENT FOR INTANGIBLE ASSETSASSETS

In Tangible Assets

If Expenditure Incurred Before 1-4-98 (Purchases Or Acquisiiton)

If Expenditure Incurred After 1-4-98 (Purchases Or Acquisiiton)

Patents / copy rights and other assets

1/4th is allowed 25% Depreciation is allowed

Technical know-how

a. Usually 1/6th is allowed.b. If know-how is

developed in Indian Laboratory or Institution – 1/3rd is allowed.

25% Depreciation is allowed

POINTS TO BE CONSIDER TO POINTS TO BE CONSIDER TO CALCULATE DEPRECIATIONCALCULATE DEPRECIATION

Depreciation = Value as on 31-03-2013 * Rate of Depreciation.

It is allowed on both tangible and intangible asset provided intangible asset is acquired on or after 1st April 1998.

If any asset is used for less than 180 days in the current previous year then 50% of the actual amount of depreciation should be allowed as deduction.

If an asset is used for 180 days or more full amount of depreciation should be allowed.

No depreciation is allowed if an asset is sold in the current previous year.

Depreciation = Value as on 31-03-13 * Rate * 50%

POINTS TO BE CONSIDERED TO CLAIM POINTS TO BE CONSIDERED TO CLAIM ADDITIONAL DEPRECIATIONADDITIONAL DEPRECIATION

The assessee must be engaged in the production or The assessee must be engaged in the production or manufacturing of any article belonging to priority or manufacturing of any article belonging to priority or non-priority sector items.non-priority sector items.

It is available of new P&M acquired & installed after It is available of new P&M acquired & installed after 3131stst March 2005. March 2005.

It is not available for old P&M.It is not available for old P&M. It is not available for assets like building, furniture, It is not available for assets like building, furniture,

ships, aircrafts, office appliances or road transport ships, aircrafts, office appliances or road transport vehicles.vehicles.

If any P&M is used in India or outside India before its If any P&M is used in India or outside India before its installation, such P&M cannot claim additional installation, such P&M cannot claim additional depreciation.depreciation.

Any P&M installed in office premisies, residential Any P&M installed in office premisies, residential accommodations and guest houses cannot claim accommodations and guest houses cannot claim additional depreciation.additional depreciation.