Rates of depreciation as per IT and Companies Act

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10-April-2013

I.  Income-tax Act
  
Who can claim depreciation?
 
Depreciation can be claimed by a tax payer, if following conditions are satisfied:
1)  There should be a depreciable asset;
2)  Such asset should be owned by tax payer;
3)  It must be used during the year for the purpose of business and profession;
  
How depreciation is calculated as per Income-tax Act?
 
Depreciation as per Income-tax Act is calculated on block of asset basis and as per method of ‘Straight Line Basis’ except in case of electricity companies.
 
“Block of assets” means a group or assets falling within a class of asset comprising:
a)  Tangible assets, being building, machinery, plant and furniture;
b)  Intangible assets, being know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature.
 
Can tax payer some additional depreciation?
 
A tax payer can claim two types of depreciation, namely:
1)  Normal depreciation: Normal depreciation is allowed every year to all tax payer at the rate prescribed for every block of asset.
2)  Additional depreciation: Additional depreciation is allowed only once at a flat rate of 20% provided prescribed conditions are satisfied.
 
Is it mandatory to claim depreciation?
 
As per Explanation 5 to Sec. 32(1), depreciation under Sec. 32 is available whether or not the tax payer has claimed it in computing its total income. In other words, it is mandatory for assessee to claim depreciation and additional depreciation, otherwise it shall be deemed that tax payer has claimed the depreciation and same has been allowed.
 
Should asset be used for the whole year?
 
50% of allowable depreciation and additional depreciation shall be admissible during the year if following conditions are satisfied:
a)  Asset is acquired during the relevant previous year;
b)  Asset is put to use during that previous year;
c)  Asset is put to use for less than 180 days; and
d)  Such asset is still lying in the block.
 
Following points are relevant:
a)  The aforesaid rule is applicable only in first year in which asset is acquired;
b)  If asset is put to use for exact 180 days, 100% depreciation shall be allowed.

In subsequent years, full year depreciation shall be allowed even if asset is used for less than 180 days.
 
  
II.  Companies Act
 
Rates of depreciation
 
Rates of depreciation are provided in Schedule XIV to Companies Act. The excel file contains rates of depreciation as per Companies Act for the Financial Year 2012-13.
 
How depreciation is calculated as per Companies Act?
 
Depreciation as per Companies Act can be calculated both on WDV or SLM basis.
 
Is it mandatory to claim depreciation?
 
As per Section 205 of Companies Act, no dividend shall be declared or paid by a company for any financial year except out of the:
a)   Profits of the company for that year arrived at after providing for depreciation; or
b)   Profits of the company for any previous financial year or years arrived and after providing for depreciation.
 
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