Section 32 of the Income Tax Act and Rule 5 of the Income Tax Rules deal with the tax benefits on depreciation of assets. Depreciation refers to a decline in the valuation of an asset over time due to obsolescence or wear and tear.
An assessee can claim a tax deduction when there’s a fall in the valuation of an intangible or a tangible asset after its usage. Read on to get the details!
You can opt for a tax deduction on the depreciation of intangible and tangible assets. If it’s a tangible asset, then a deduction is applicable against machinery, plant and building. If it’s an intangible asset, then a deduction is available against the franchise, license, copyright, trademark, patents or any other commercial or business right.
As per this Section, you can claim a deduction on depreciation if the following terms and conditions are met:
Depreciation is permissible as an expenditure under the IT Act based on the block of assets. Here, a block of assets denotes an asset group falling under an asset class for which the same depreciation rate is applicable. A deduction on depreciation is calculated using WDV (Written Down Value) method.
The following are the basics of depreciation under Section 32 of the Income Tax Act:
The provisions for depreciation during a year in which a taxpayer has purchased an asset are as follows:
The provisions for depreciation during the succeeding years are as follows:
Depreciation rates allowable on the below-mentioned assets are as follows:
|Type of Asset||Rate of Depreciation|
|Copyright, license, patents, trademark, know-how, franchise or any other business or commercial rights||25%|
|Books from a library business||100%|
|Books (other than annual publications) that are owned by an assessee carrying on any profession||60%|
|Books (only annual publications) that are owned by an assessee carrying on any profession||100%|
|Computer software and computers||40%|
|Motor buses/taxis/lorries running on hire (a business should purchase them prior to April 1 2020, but on or post August 23 2019. They should be put to use prior to April 1 2020.)||45%|
|Motor buses/taxis/lorries from a business, running on hire||30%|
|Motor cars (other than those from businesses that run them on a hire basis) purchased prior to April 1 2020, but on or post August 23 2019, and being put to use prior to April 1 2020||30%|
|Motor cars other than those from businesses that run them on a hire basis||15%|
|Any furniture/fittings, inclusive of electrical fittings||10%|
|Fully temporary constructions such as wooden structures||40%|
|Hotels and boarding houses||10%|
|Residential buildings other than hotels and boarding houses||5%|
Additional depreciation will be allowed in the following cases:
Section 32 of the Income Tax Act for AY 2021-22 ensures mandatory tax deductions with regard to depreciation. That said, assessees can claim deductions after the fulfilment of certain conditions. Make sure to go through the write-up to get a clear idea about the details related to this Section.
Ans: As per Section 32 of the Income Tax Act, block of assets refers to an asset group falling under an asset class consisting of intangible and tangible assets. The Income Tax Department has categorised block of assets on the basis of nature, life, and usage of an asset.
Ans: WDV (Written Down Value) as per the IT Act denotes:
When a taxpayer has acquired an asset during the preceding year, he/she can treat that asset’s actual cost as WDV.
If a taxpayer has acquired an asset during an earlier year, then the WDV = Actual cost – Depreciation applicable.
Ans: If a taxpayer who is a manufacturer of a thing or an article on or post April 1 2015, in a specified backward region of West Bengal, Telangana, Bihar and Andhra Pradesh purchases and installs a new plant or machinery within April 1 2015 – March 31 2020, an additional depreciation @35% will be applicable.
Ans: In case of a loss from a profession or a business due to depreciation, there arises unabsorbed depreciation. A taxpayer can carry forward this unabsorbed depreciation. The person need not submit a return of loss for this purpose.
Ans: Depreciation will be allowable in case of demerger or amalgamation of a business. The depreciation allowance will be distributed between the amalgamated and the amalgamating company.
The calculation of the aggregate depreciation will be such as if an amalgamation didn’t take place. The depreciation amount will be apportioned depending on the duration for which the companies have used the assets.
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