Depreciation Section 32, Additional Depreciation, Special deduction Section 32AD

What is Depreciation?

As per Income Tax Act Depreciation is Reduction in Carrying value of Intangible or Tangible Assets over a period of time. Depreciation is non-cash expenditure as per Income-Tax Act. There are two method of Deduction in terms of Depreciation.

  • Written Down Method
  • Straight Line Method

However  Income Tax Act allowed Depreciation as per written down method but in case of power generating unit it allows assessee either to opt straight line method or Written Down Method of Depreciation.

Computation of Depreciation

When an Assets is Purchased by an Assessee and that assets have not put to use the whole year so in that case Depreciation shall not be in that year, However Depreciation shall be charged to full year irrespective of no days used in the next year. Similarly If assets is purchased and put use during the year the calculation of depreciation will be based on no of days used, If assets has been used for Less than 180 days  during the year depreciation is allowed half the normal rate. If assets is used for more than 180 days  than normal rate of depreciation is charged. If any assets has been sold at any time during the year, in that case, depreciation is not allowed for that year.

Depreciation on the basis of Block of Assets

Block of Assets means Assets falling in same rate of Depreciation. It is not computed on the basis of Individual assets rather on the basis of a group of assets called Block of Assets which means a group of similar type of assets having same rate of depreciation and shall be computed in the manner given below

  • As on 1st day of April take opening written down value of the particular block of assets.
  • Add all purchases made during the year.
  • Deduct the amount of sale during the year and also amount of Insurance claim and also scrap value.
  • Apply Depreciation  on  the balance amount as on the last day of the year.
  • If any asset was put to use for the less than 180 days, depreciation shall be allowed at half the normal rate and for this purpose its actual cost shall be separated from total written down value of the block at half the normal rate.
  • If no there is no assets in the books of accounts but showing some balances than it will be considered as short term loss as per section 50.
  • If there is a negative balance at the end of the year, it will be considered to be short term capital gain.

Additional Depreciation Section 32

Additional Depreciation shall be allowed to plant and machinery used only for the purpose of  manufacturing at the rate of 20%, and additional depreciation is also allowed to assessee engaged in generation, transmission or distribution of electricity. Additional depreciation shall be allowed only in the year in which asset has been put to use only and only once.

Exception of Additional Depreciation

  1.  Additional Depreciation is not allowed to second hand plant and machinery.
  2. Plant and Machinery used for office premises or any residential purpose, guest-house.
  3. Any office appliances or road transport vehicles or ships and aircraft.
  4. Any machinery or plant the actual cost of which has been debited to profit and loss account.

Additional Depreciation is allowed at the rate of 10% if assets are purchased and used less than 180 days in the subsequent year.

Special Deduction Section 32AD

Addition 35% of depreciation shall be allowed to manufacturing unit if it is installed in backward area of Andhara Pradesh, Bihar, Telangana or West Bengal. However if Plant and machinery has been sold within a period of 5 years from installation investment allowance allowed shall be considered to be income under the head business/profession of the year in which the asset has been sold.




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