Deprecation as per Co. Act & I.T.Act

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Querist : Anonymous

Querist : Anonymous (Querist)

08 April 2010 What is the logic behind having the different rate of depreciation as per Companies Act and As per Income Tax. Is it really required to have the difference. Is there any basis for finding out rate of depreciation as per Co.Act and I.T.Act.

Why these should not be rationalised

1) To avoid to keep different record of Fixed Assets
2) To avoid deferred tax on dep.

taxindiaconnect

taxindiaconnect (Expert)
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09 April 2010 Dear, yes there is a logic behind the two rates of tax under two Statues. In India rate of depreciation has been tradionally used as a big engine for providing incentives to business for growth .

The rate of depreciation provided under Co. Act is minimum rate of dep to be provided in books so that the business is ready with the funds when the business assets are required to be replaced. In the absence of a minimum rate of depreciation to be charged off to books, the business house will tend to charge a very low amount of depreciation in books to show larger profits. In such case business will not be left with enough cash in the system to replace the machine after the useful life of the assets is over.

The Income tax Act provides for the maximum depreciation to be provided while computing the taxable income of the assessee. The maximum rate of dep. So provides serves two purpose, the assessee will not be tempted to charge higher rates to avoid tax liability. Secondly the lower tax paid in the initial years of the business due to higher depreciation leaving the additional funds in system which can be be invested in business for growth.

Querist : Anonymous

Querist : Anonymous (Querist)

10 April 2010 Thanks Rajesh ji

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