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Rate of Depreciation under Income Tax Act

One of the basic difference in income tax depreciation calculation and companies act depreciation other than rates of depreciation is method of calculation. Under income tax only written down value method is allowed means each year value of asset is reduced by depreciation amount and next year depreciation is calculated on that reduced value of asset. Whereas under companies act depreciation can be calculated on Straight line method or Written down value method (SLM Method or WDV Method).

Income tax Act depreciation rate: Also Read List of Income Taxable as Profits and Gains of Business or Profession

  1. An asset acquired during previous year and is put to use for less than 180 days during the year – Half of usual depreciation
  2. Additional depreciation at the rate of 20% over and above of normal rate shall be allowed to and industrial undertaking for any new plant & machinery acquired and installed after31.03.2005 u/s 32(iia)Read Depreciation on Goodwill and Goodwill is treated as asset under section 32 of the Income Tax Act, 1961

Company’s Act depreciation rate:

  1. Pro rata basis from the date of additional or upto the date of sale / discarded.
  2. Assets whose actual cost does not exceed Rs. 5000/- shall be provided depreciation at the rate of 100%
Particulars

Income Tax

Company’s Act

% WDV

% WDV

% SLM

A.Y.

Single Shift

Single Shift

Computers

60%

40%

16.21%

Plant and machinery

15%

13.91%

4.75%

Furniture and fixture

10%

18.10%

6.33%

Cars and vehicles

15%

25.89%

9.50%

Cars vehicles used on hire

30%

40%

16.21%

Building – Non residential

10%

10%

3.34%

Building – Residential

5%

5%

1.63%

Books owned by Professionals
i)Books being annual publications

100%

-

-

ii)Books other than i) above

60%

-

-

Books owned by assessee carrying on business in running lending library

100%

-

-

Know how, patent, copy right, trademarks

25%

-

-

 Read Amortize Preliminary Expenses under section 35D

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11 thoughts on “Rate of Depreciation under Income Tax Act
  • HARSHIT AGARWAL says:

    Depreciation on furnitures of tents house such as chairs and table will bw @ 10% or 20%?.
    we all now that such furniture more wear and tear and used for business movement.
    please give light on this issue.

    • admin says:

      SUPREME COURT OF INDIA
      Commissioner of Income-tax v.Anand Theatres

      Section 43(3) of the Income-tax Act, 1961 – Plant – Assessment year 1986-87 – Wheth­er word ‘plant’ given in section 43(3) includes buildings – Held, no – Whether building which is used as hotel or cinema theatre can be considered to be apparatus or tool for running business so that it can be termed as plant and depreciation can be allowed accordingly – Held, no – Whether building used for running hotel or cinema business could be held a ‘plant’ as provided under section 43(3) – Held, no
      FACTS
      The assessee claimed depreciation at 15 per cent on the theatre building claiming it to be a plant. The Assessing Officer reject­ed the claim and allowed depreciation only at 5 per cent. The Commissioner (Appeals) allowed the assessee’s appeal holding that the theatre building was to be treated as a plant. The Tribunal agreed with the Commissioner (Appeals). On reference, the High Court also answered in favour of the assessee.
      On revenue’s appeal to Supreme Court.
      HELD
      For a building used as a hotel there is a specific provision for granting depreciation allowance at specified rates depending upon fulfilment of the conditions mentioned in section 32. Hence, there is no question of resorting to dictionary meaning of the word ‘plant’ which may or may not include building, for arriv­ing at a conclusion that building which is specifically designed and constructed as a hotel building would be a ‘plant’.
      Further, in context of legislative scheme under section 32 which provides depreciation at different rates for building, machinery and plant, furniture and fixtures, ships, buildings used for hospital, aeroplanes, cinematograph films, machinery used in the production and exhibition of cinematograph films, recording equipment, reproducing equipment, developing machines, printing machines, synchronisers and studio lights except bulbs, project­ing equipment of film exhibiting concerns, even though the word ‘plant’ may include building or structure in certain set of circumstances as per the dictionary meaning but to say that building used for running the business of hotel or cinema would be ‘plant’ under the Act appears, on the face of it, to be incon­sistent with the aforesaid provisions. Such meaning would be clearly against the legislative intent.
      The Scheme of section 32 unequivocally leads to the conclusion that ‘building’ and ‘plant’ are treated separately for the pur­pose of grant of depreciation. Higher rate of depreciation is granted to ‘machinery’ and ‘plant’ as against the ‘building’ which has more durability.
      The word plant is given meaning under section 43(3) to include ships, vehicles, books, scientific apparatus and surgical equip­ment used for the purposes of the business or profession, but this would not mean that it includes building which is treated separately from machinery and plant. Wider meaning to word ‘plant’ is given by including specified items mentioned above, that is, it includes ships, vehicles, books, etc. Business of a hotelier is carried on in a building or a premises and buildings is not an apparatus for running such business. It is a shelter or a home for conduct of such business. For a hotel prem­ises, under the Act, building is not considered to be an appara­tus for running hotel business but is merely a shelter or home or setting in which business is carried out. Same would be the position with regard to a theatre in which cinema business is carried on.
      Buildings cannot be treated as tools for running business but are mere shelter for carrying on such business activities. Therefore, even functional test, which is followed and which would not be conclusive in all cases, is also not satisfied.
      Building for hotel or cinema cannot be stated to be adjunct, that is to say, (as per the dictionary meaning of the word ‘adjunct’) something added to another, or it is in a subordinate, auxiliary or dependent position.

  • Nirav doshi says:

    I need to know whether we can claim depreciation on Commercial property even if we have not recd OC for the same.
    pls help me with any related Case law for the same.

  • Nirav doshi says:

    we have taken loan for commercial property for which we not Recd OC.Do we need to capitalise the interest which is paid on commercial property as per AS16 by considering that commercial property as Qualifying Asset

    • admin says:

      Nirav Ji, As per AS 16 Capitalization of interest ceases when the Asset is ready for intended use means asset is complete can be used as it is in future. But read with AS 10 para 9.4 you can 9.4 If the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this
      period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production*.
      *It may be noted that this paragraph relates to “all expenses” incurred during the period.This expenditure would also include borrowing costs incurred during the said period.Since Accounting Standard (AS) 16, Borrowing Costs, specifically deals with the treatment of borrowing costs, the treatment provided by AS 16 would prevail over the provisions in this respect contained in this paragraph as these provisions are general in nature and apply to “all expenses”.
      Also meaning of intended is “expected to be such in the future” .

    • admin says:

      Nirav Doshi Ji, As per Section 32 of the Income Tax Act basic condition to claim depreciation is ownership of asset and it must be used for the purposes of the business or profession. In case if you have not used the asset then you can’t claim depreciation under income tax act. But for Accounting purpose of company, you can claim depreciation and this will result in deferred tax.
      32.(1) In respect of depreciation of—
      (i) buildings, machinery, plant or furniture, being tangible assets;
      (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,
      owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed

  • M.L.Aggarwal says:

    We are using multifunction equipment – Printer cum copier for our office ( Printers cum copiers are attached to the computers). What will be depreciation rate for the multifunction. Please let us know the I/T guidelines on the same.
    Thanks.
    aggarwalml

    • admin says:

      M.L. Aggarwal ji, if you are using the printer with computer then as it will be treated as output devices such as printer, scanner etc. are computer peripherals and form essential parts of PC. These output devices cannot work in isolation and also working on computer system without an output device such as printer would be futile. Desicion of ITAT Delhi in case of ACIT vs Container Corporation of India Ltd.

      But every thing depends on the facts and in the circumstances of the case
      Also As per Decision of calcutta High Court in case of Commissioner Of Income-Tax vs Jokai India Ltd also in case of
      CIT v. General Fibre Dealers (P.) Ltd. [2001] 248 ITR 622 “the point was that jeeps and motor cycles were used inside the tea gardens and as well as outside the tea gardens as vehicles. Therefore, it cannot be treated as part of plant and machinery. But in the case in hand the trailers are used only within the tea estate garden. They are never used as vehicles on the road from point to point. Therefore, they form part of the plant and machinery and are entitled for investment allowance”.

  • vimal d jariwala says:

    my car sales in 9 month so after depriciation will be deducted

    • admin says:

      If you are using your car or any other asset for business then you can claim depreciation on car or any other asset at full rate if used for more than 180 days
      but in case if you are coming under section 44AD then

  • m.vennila says:

    I need to know wether telephone as per IT act % please help me