Depreciation - Section 32 - Income Tax - Ready Reckoner - Income Tax

Depreciation - Section 32 In respect of i. Tangible assets ii. Intangible assets owned WHOLLY OR PARTLY by the assessee and used for the purposes of the business or profession depreciation shall be allowed on the WDV of the block of assets at the prescribed percentage. Rates of Depreciation Class of Asset Rate(s) Building: Residential 5% General 10% Temporary Structure 40% Furniture Fitting 10% Plant Machinery i) Motors Cars, a) other than used in a business of running them on hire. - Acquired put to use between 23.08.19 to 31.03.20 b) Used in a business of running them on hire. - Acquired put to use between 23.08.19 to 31.03.20 15% 30% 30% 45% Renewable Energy Devices- i. Being wind mills and any specifically designed devices which run on wind mills installed on or after 1-4-2014 ii. Being any special devices including electric generators and pumps running on wind energy installed on or after 1-4-2014 In case windmills and its equipment installed before 1-4-2014 40% 15% Oil Wells 25% Books owned by assessees carrying on a profession Books, being annual publications 40% Books, other than those covered by entry (a) above 40% Books owned by assessees carrying on business or in running lending libraries 40% Ships 20% Aeroplanes 40% Air pollution control Equipments, Water Pollution Control Equipments 15% Computers/Laptop and its equipments [ Exclude EPABX Mobile phones ] 40% Intangible Assets 25% Notes :- Normal depreciation is allowable even if actual cost of the asset is less than 5,000. EPABX Mobile phones are not to be considered as computers or its accessories. Depreciation is allowed when assets is actually put to use not when ready to use. Proviso under section 43 (1), whereby if any person acquires any asset for which payment in excess of Rs. 10,000 is made in cash then such item cannot be considered as capital expenditure and consequently no depreciation shall be allowed on the same. As per sec 43 (3) plant includes ships, vehicles, books, scientific apparatus surgical equipment used for business or profession but does not include Tea bushes, live stock, building, furniture fittings. Explanation 5 to Section 32(1) : Mandatory to claim depreciation Depreciation shall be allowed to the assessee whether or not the assessee has claimed deduction in respect of depreciation in computing his total income. Depreciation on Goodwill of Business and Profession [ Amendment by FA 2021 , w.e.f. AY 2021-22] Section 2(11) has been amended to provide that block of asset shall not include goodwill of business or profession; section 32(1)(ii) has been amended to provide that goodwill of a business or profession shall not be considered as an asset for the purpose of said clause and therefore not eligible for depreciation. Further, Explanation 3 to sec 32(1) has been amended to provide that goodwill of business or profession shall not be considered as an asset for the said sub-section. Section 43(6) relating to meaning of WDV has been amended to provide that for the purpose of charging depreciation w.e.f. AY 2021-22 in case of Intangible assets, WDV of goodwill computed shall be reduced from WDV of Intangible block of Assets. Section 55 provides that if goodwill of business or profession ( on which depreciation claimed till PY 19-20) is transferred during PY 20-21 or thereafter then Cost of acquisition of goodwill for the purpose of Capital Gain shall be the actual cost minus depreciation claimed. Depreciation in respect of imported motor car Depreciation shall not be allowed in respect of imported motor car acquired before the 1 st April, 2001. Exceptions Where such motor car is used in a business of running it on hire for tourists Where such motor car is used by the assessee outside India in his business or profession in another country. Note: On imported motor cars acquired on or after 01.04.2001 depreciation is allowable in all cases. Proviso to Section 32(1) : 50% Depreciation when asset is put to use for less than 180 days Depreciation restricted to 50% if put to use for less than 180 days in the year of acquisition. Restriction applies only in the year of acquisition i.e. put to use for less than 180 days in the year of acquisition. No depreciation on assets whose actual cost allowed as deduction under Section 42 . Proviso to Section 32(1) : Depreciation in case of succession, amalgamation and demerger and conversion of company into LLP In case of succession, amalgamation and demerger Depreciation is allowed to Predecessor/ Amalgamating/ Demerged Co. AND to Successor/ Amalgamated/ Resulting Co. in the ratio of the number of days for which the assets were used by them in the precious year in which succession/ amalgamation/ demerger takes place. Depreciation to be so apportioned shall be the depreciation calculated assuming that succession/ amalgamation/ demerger has not taken place. Rationalisation of rates of depreciation The allowance of depreciation u/s 32(1)(ii) in respect of any block of assets entitled to more than 40% shall be restricted to 40% on the written down value of such block of assets in case of - a domestic company which has exercised option u/s 115BA , or u/s 115BAA or u/s 115BAB ; or an Individual or HUF which has exercised option u/s 115BAC ; or a Co-operative society resident in India which has exercised option u/s 115BAD . Other Relevant Information - Depreciation on Assets given for right to use or on installmentse As per hire purchase agreement ownership of assets will be on the payment of last installment, therefore ownership will not transfer till the last installment and hence assessee can claim depreciation Boston Scientific India Pvt. Ltd, Versus DCIT, Circle-4 (2), New Delhi 2023 (4) TMI 186 - ITAT Delhi . Increase in share capital No depreciation is allowed on increase of share capital, as no new asset is formed and such expense shall be treated as per section 35D DCIT, Central Circle-2, Vadodara Versus M/S. H.K. Ispat Pvt. Ltd. and (Vice-Versa) 2023 (3) TMI 714 - ITAT Ahmedabad . Depreciation on goodwill to resulting company Self generated goodwill which were lying in the books of the assessee of demerged company and such goodwill transfer on the occasion of demerger, Resulting company is allowed to treat such goodwill as purchased goodwill as per the value determined in the scheme of demerger. M/S. Sunedison Solar Power India Pvt. Ltd. Vs DCIT, Corporate Circle 6 (2) / Ito, Corporate Ward 6 (3) / DCIT, Corporate Circle 6 (3) , Chennai and ACIT, Corporate Circle 6 (2) , Chennai Vs M/S. Sunedison Solar Power India Pvt. Ltd. 2023 (4) TMI 739 - ITAT Chennai .