Allowability of depreciation

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JAINAB KHAN (Querist)
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15 December 2011 Can pvt ltd company charge dep as per income tax on factory if same is given on rent and not used for business during the year? how to show the dep as per comanies act in the books of account? How to show the rent received for factory in books of accounts?

Ratan Sharma

Ratan Sharma (Expert)
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15 December 2011 Depreciation not allowable if the asset is not used for business purposes. You can charge the depreciation in the books of account as per companies act but while preparing the computation of income for income tax purpose then the same will be disallowed. For rent received, pass the entry in books like Bank/Party/Cash a/c dr To factory rent account.

Sanjana

Sanjana (Expert)
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15 December 2011 Yes Depreciation would be allowed as an expenditure, if rental income is offered to tax under the head Business or Profession. But generally Rental income is offered to tax under the head Income from Other sources in which case Depreciation will not be allowed as a deduction. Rental Income can be considered as Business income only if the asset is given on Rent for a temporary period for some valid reasons and would be used for business purpose in future. Else Income Tax Department will treat it as IFHP and disallow depreciation.

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