Blog > How to Calculate Depreciation as per Income Tax (Act, 1961)

How to Calculate Depreciation as per Income Tax (Act, 1961)

by Team MMR | 15 October 2012

In order to calculate depreciation as per the Income Tax Act, 1961, let us first understand the meaning of Depreciation:

Depreciation is nothing but diminution in the value of asset due to wear and tear due to time.

Section 32 of Income Tax Act, 1961 has explained the concept of Depreciation and its implication. As per this section Assessee can claim depreciation if he is satisfying following 3 conditions:

  1. Asset should be owned by Assessee (Fully or partly).

  2. Asset must be used during previous year i.e. during the financial year. No Assessee is allowed to claim depreciation on un-installed or un-used fixed asset.

  3. Asset must be used for business or profession purposes only.

As per income tax provisions Fixed Assets should be charged to depreciation block-wise with WDV method (Written Down Value). WDV method is a method in which depreciation is calculated on net value of asset each year. Assets can be categorized in blocks by referring their rate of depreciation.

E.g. Machinery, Plant, Motor Cycle, Bike, etc. can be 1clubbed together under one block as the rate of depreciation is same i.e. 15% p.a.

Depreciation can be used as effective tool for tax planning. It is non-cash expenditure and allows Assessee to save bulk of taxes.

Following is the list of Blocks with the rate of depreciation:

 

Sr. no.

Particulars

Rate of Depreciation

1

Plant & Machinery (Includes Factory plant, Machinery, Motor cars etc. and excludes Aero-plane, Aero-engines, Motor buses, Lorries and Motors which are used in business of running on hire.)

15%

i)

Motor buses, Lorries and Motors which are used in business of running on hire

30%

ii)

Aero-plane, Aero-engines

40%

iii)

Computer and printer (Includes computer software)

60%

2

Ships

20%

3

Intangible Assets

25%

4

Furniture(Includes Electronic sockets, wiring, fans and other fitting)

10%

5

Buildings (Includes Bridges, Roads, Culverts, wells etc.)

10%

 

Assessee can claim 100% depreciation on few assets like Wind Mills and other devices including Pumps running on wind energy, Electric generators, Biogas plants and engines, Solar power generating systems, electrically operated Vehicles, Agricultural and municipal waste conversion devices, etc.

So don’t forget about depreciation while determining income tax to be paid for your fixed assets.

Tax Return Filing

Comments (2) -

KANIKA RAJ
3/27/2013 8:35:51 PM #

Depreciation on comuter UPS is 60% or 15%

Queuing System
4/15/2013 6:41:26 PM #

this is very usefull tool for electronics

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