DEPRECIATION

DEFINITION

• The normal wear and tear of the assets owned by the assessee used in the business or profession in the relevant previous year.

• The asset may be used at any time during the year.

ASSETS

• Building• Machinery • Plant• Furniture• Patents, trademarks, technical knowhow– Plant includes ships, vehicles, books, scientific

apparatus, surgical equipment, computers, service lines and pipeline fittings etc

PROVISIONS OF THE IT ACT– Deduction of depreciation is to be allowed at the prescribed rates out

of the profits of the previous year– Depreciation is to be allowed at 50% of the normal rate of

depreciation in case new asset is acquired during the year and is actually used for less than 180 days.

– Depreciation is allowed on written down value basis in case of all assets. But in case assessee is engaged in the business of generation and distribution of electricity, he has the option to adopt actual cost method of charging depreciation

– No depreciation is allowed in the year in which the asset is sold, demolished, destroyed or discarded.

BLOCK OF ASSETS

• Block of assets means aggregate of WDV as on 1.4.2011 of all those assets which have a common percentage of rate of depreciation but are within the same group or category of assets.

ACTUAL COST OF ASSETS

Cost actually met by the assessee( cost minus govt subsidy etc)

Actual cost to include cost of installation, expenses on insurance, frieght, loading and unloading charges, modification or repairs before use of asset, interest paid on acquiring the asset before the asset is has been put to use

Asset acquired by way of gift or inheritance- the written down value of the previous owner is taken as cost of the present assessee.

WRITTEN DOWN VALUE

I. Written down value (aggregate) of all the assets falling within the same block as on 1.4.2011

II. Add actual cost of any new asset of the same group acquired and put to use during the year.

III. Deduct any amount received on account of sale, demolition, discarding or destruction of any asset during the year.

IV. Resultant amount will be the WDV for the purpose of calculation of depreciation.

COMPUTATION OF DEPRECIATION

• DEPRRECIATION= WRITTEN DOWN VALUE OF THE BLOCK AS ON

31.03.2012 XRATE OF DEPRECIATION FOR SUCH BLOCK/ 100

ADDITIONAL DEPRECIATION

• IN ASSESSMENT YEAR 2012-13 AN ADDITIONAL DEPRECIATION @ 20% OF ACTUAL COST OF PLANT AND MACHINERY IS ALLOWED IF NEW PLANT AND MACHINERY IS ACQUIRED AND PUT TO USE.

UNABSORBED DEPRECIATION

• In case available depreciation is less than admissible depreciation, the unadjusted portion is called unabsorbed depreciation which is added to the succeeding previous year’s depreciation and is treated as current depreciation of such succeeding previous year and so on.