Sec 32 of income tax act
This query is : Resolved
04 July 2013
Under Hire purchase system who will claimed depreciation.
Hirer or vendor
Plz reply
Hirer or vendor
Plz reply
04 July 2013
In hire purchase system, purchaser is allowed to claim the depreciation.
05 July 2013
Deduction is allowed in respect of hire charges so how we can claim depreciation????
05 July 2013
In hire purchase there must be two component, cost of assets and finance charge.
you can claim depreciation on cost of assets
you can claim depreciation on cost of assets
05 July 2013
Depreciation on assets acquired under the hire-purchase agreement - Conditions subject to which it is to be allowed
The following instructions are issued for dealing with cases in which an asset is being acquired under on what is known as hire-purchase agreement :
1. In every case of payment purporting to be for hire-purchase, production of the agreement under which the payment is made should be insisted on.
2. Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee
(e.g., where the lessor obtains a right to sue for arrear instalments but no right to recovery of the asset), the transaction should be regarded as one of purchase by instalments and no deduction in respect of “hire” should be made.
Depreciation should be allowed to the lessee on the entire purchase price as per the agreement.
3. Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire purchase.
In such cases the periodical payments made by the hirer should for tax purposes be regarded as made up of :
a. Consideration for hire, to be allowed as a deduction in the assessment, and
b. payment on account of purchase to be treated as capital outlay, depreciation being allowed to the lessee on the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date of agreement).
Refer for more understanding
https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2006ITAct/sec_032.htm
search with 'hire ' ctrl+F and enter to search
https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2009ITAct/casesec32.htm
The following instructions are issued for dealing with cases in which an asset is being acquired under on what is known as hire-purchase agreement :
1. In every case of payment purporting to be for hire-purchase, production of the agreement under which the payment is made should be insisted on.
2. Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee
(e.g., where the lessor obtains a right to sue for arrear instalments but no right to recovery of the asset), the transaction should be regarded as one of purchase by instalments and no deduction in respect of “hire” should be made.
Depreciation should be allowed to the lessee on the entire purchase price as per the agreement.
3. Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire purchase.
In such cases the periodical payments made by the hirer should for tax purposes be regarded as made up of :
a. Consideration for hire, to be allowed as a deduction in the assessment, and
b. payment on account of purchase to be treated as capital outlay, depreciation being allowed to the lessee on the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date of agreement).
Refer for more understanding
https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2006ITAct/sec_032.htm
search with 'hire ' ctrl+F and enter to search
https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2009ITAct/casesec32.htm
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