Depreciation

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susan (Querist)
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22 November 2007 Why is depreciation calculated diffrently under companies Act & Income Tax Act. Why dont these 2 acts have common rate

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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22 November 2007 Objects of both the acts are different

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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22 November 2007 Depreciation as we know is a non-cash expenditure. It is true that expenditure incured in bringing in an asset for incmoe earning activity has to be suitably factored while arriving at the net income. Depreciation is nothing but that factor. The object of the income tax is also to give allowance towards that factor and hence a particular rate of depreciation. That act considers the rates as the maximum possible allowance. In the case of companies Act, it also recognises the same objective and calls for a provision of minimum rate for arriving at the net profit. It does not prevent a person from providing for a higher rate, if required.

S.RAVICHANDRAN

S.RAVICHANDRAN (Expert)
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22 November 2007 Depreciation beign an allowable business expenditure would be viewed in Revenue point of view by Income Tax Act, whereas it is viewed in the natural sense under the Companies Act.

So, Companies Act allows a higher amount of depreciation whereas the Income Tax Act allows a slightly lower amount of depreciation ( WDV basis ).

Since the point of view of the Acts are different, there are differences in the method and rates of depreciation under the both Acts.

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