close x


what is unabsorbed depreciation?


What is unabsorbed depreciation ? how is its treatment different in taxation vis-a-accounting?

 
Reply   
 

Unabsorbed depreciation - Its the amount of depreciation which the assessee couldnt claim as expenditure in his profit and loss account due to lack of sufficient credit in the credit side of p&l account or other expenses..

 

Such loss in p&l account due to the excess depreciation is called unabsorbed depreciation.

 

such depreciation can be set off against any head of income in the current year and the balance not setoff can be carried forward for any number of years.

 

Treatment of current year depreciation:

 

a. claim deduction of current year depreciation from the business to which it relates.

 

b. Deficiency in a. can be setoff against profits and gains of any other business of the assessee.

 

c. Deficiency in b. can be set off against any other head of income of current previous year

 

d. Deficiency in c. is "unabsorbed depreciation" for the current previous year. the unabsorbed depreciation has same treatment as business loss which is carried forward - for accounting purpose.


Total thanks : 2 times

 
Reply   
 


Cost And Management Accountant

Dear,

Unabsorbed Depreciation is that portion of depreciation, which has not been recognised in accounts (made for tax purpose) so far due to the higher amount of depreciation against lower taxable profits. In such a case that portion of depreciation, which is unabsorbed, will be carried forward to be absorbed against future taxable profits.

Also note that it has no concern with accounts made for financial reporting purpose provided that rate of depreciation in both accounts (Tax and accounts) is consistent. However, if both of the profits are changed due to the different rate of depreciation in arriving at Taxable profit and Accounting profit then deferred tax implications would arise, which has to be accounted for as per rules provided by the relevant standards.

Let me know if confusion still exists.

Best Regards,
 

Desperado. 


Total thanks : 1 times

 
Reply   
 

how does unabsorbed depreciation arise?

Is it due to different rates of depreciation applied for accounting and taxation purposes?

How does it affect the P& L a/c?

please explain with numerical figures.

 
Reply   
 

Take a simple example -

In P/L a/c you have G.P./ Income etc. on credit side as Rs. 50,000.  Depreciation during the year is say 10,000.  Now you will simply debit the depreciation and your net profit will become 40,000 chargeable to tax.

 

However if the credit side remains same as Rs. 50,000 but the depreciation is 60,000 then what will happen?

In accounting terms it will simply show a loss of 10,000 to the firm.  However in taxation terms this 10,000 will be known as unabsorbed depreciation.

 

Now the assessee can carry forward this 10,000 to next years and can setoff it against future profits.  For details you should read SET-OFF & CARRY FORWARD chapters along with topic of depreciation in b&p


Total thanks : 1 times

 
Reply   
 

To add to what Mohit mentioned:

 

It is important under Income tax that net loss for any year be segregated into two parts in the Return of Income - 1) Business Loss 2) Unabsorbed depreciation.

 

While business loss can be carried forward & set off against business income only to a maximum of 8 year (subject to certain conditions), unabsorbed depreciation can be carried foward & set off against business income during unlimited number of years.

 

Therefore, in the subsequent years, whenever the entity has a profit, it should first set off its past losses. Once all the past losses have been set-off, the unabsorbed depreciation can be set off against income.


Total thanks : 2 times

 
Reply   
 

To add to what Mohit mentioned:

 

It is important under Income tax that net loss for any year be segregated into two parts in the Return of Income - 1) Business Loss 2) Unabsorbed depreciation.

 

While business loss can be carried forward & set off against business income only to a maximum of 8 year (subject to certain conditions), unabsorbed depreciation can be carried foward & set off against business income during unlimited number of years.

 

Therefore, in the subsequent years, whenever the entity has a profit, it should first set off its past losses. Once all the past losses have been set-off, the unabsorbed depreciation can be set off against income.

 
Reply   
 

 

Thank You

Mr. Mohit & Moonwalker for explaining the concept in such a simple manner.

 
Reply   
 

a type of business loss only...........

 
Reply   
 

dear sir

i want to what is the depriceation and what is the treatment of the deprication please sare a doc. about the complete depriciation knowldge

 
Reply   
 

LEAVE A REPLY



    

Your are not logged in . Please login to post replies

Click here to login   Click here to Register



 



Share on :