Question 1

How is depreciation calculated under the Indian Income Tax Act?

Accepted Answer

Under Section 32 of the Income Tax Act, depreciation is calculated using the Written Down Value (WDV) method. Assets are grouped into blocks based on their prescribed rates. Depreciation is calculated on the opening WDV of the block, adjusted for additions and disposals during the year. The key rates are 15% for buildings, 40% for plant and machinery, and 60% for computers.

Question 2

What are the common depreciation rates under the IT Act?

Accepted Answer

The most common rates are: Buildings (residential) at 5%, Buildings (non-residential) at 10%, Furniture and fittings at 10%, Plant and machinery (general) at 15%, Motor vehicles at 15%, Computers and software at 40%, and Books at 40%. Higher rates of 30% and 45% apply to specific categories of plant and machinery used in manufacturing.

Question 3

What is the difference between IT Act and Companies Act depreciation?

Accepted Answer

The Income Tax Act uses the WDV (declining balance) method with prescribed rates for tax purposes. The Companies Act 2013 uses the Straight Line or WDV method based on useful life prescribed in Schedule II for financial reporting. They serve different purposes: IT Act depreciation reduces taxable income, while Companies Act depreciation is for presenting true and fair financial statements.

Question 4

What is the Block of Assets concept?

Accepted Answer

Under the Income Tax Act, assets with the same depreciation rate are grouped into a single 'block.' Depreciation is calculated on the entire block's WDV, not individual assets. When an asset in the block is sold, the sale proceeds reduce the block's WDV. If the block balance becomes zero or negative, a short-term capital gain arises. This simplifies calculations but makes individual asset tracking less precise.

Question 5

Is additional depreciation available under Indian tax law?

Accepted Answer

Yes. Under Section 32(1)(iia), an additional depreciation of 20% is available on the cost of new plant and machinery (not second-hand) acquired and installed by a manufacturing or power-generation business. This additional depreciation is available only in the first year. If the asset is used for less than 180 days in the year of acquisition, 50% of the additional depreciation is allowed that year with the balance claimed the next year.

India Depreciation

Frequently Asked Questions

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India Depreciation

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India Depreciation

Frequently Asked Questions

1How is depreciation calculated under the Indian Income Tax Act?

2What are the common depreciation rates under the IT Act?

3What is the difference between IT Act and Companies Act depreciation?

4What is the Block of Assets concept?

5Is additional depreciation available under Indian tax law?

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India Depreciation

Frequently Asked Questions

1How is depreciation calculated under the Indian Income Tax Act?

2What are the common depreciation rates under the IT Act?

3What is the difference between IT Act and Companies Act depreciation?

4What is the Block of Assets concept?

5Is additional depreciation available under Indian tax law?

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