In a sole proprietorship business scenario where some of the fixed-assets (like computers, servers/routers, smartphone, etc.) are sometimes used for personal purposes, in addition to their intended business purposes; as per Section 38(2), Income-tax Act, it allows a fair proportionate part of depreciation calculated based on estimated business-usage of the fixed-assets that are not exclusively used for business purposes.
When we look at the depreciation schedules of the ITR-3 form (Schedule DPM and Schedule DOA, to be precise), we do not see any option to mention a proportionate depreciation.
Mathematically my understanding is:
If an asset, say a new workstation computer, was put to use since April 1 of the previous year, and had a cost of ₹50,000, and the rate of depreciation allowable as per Income-tax is %40. We put this amount as additions in the Schedule DPM and the form automatically calculates the depreciation for us.
Depreciation = 40% of ₹50,000 = ₹20,000
Keeping all above parameters same, with estimated business-use of 30%, and we can calculate the fair proportionate part of depreciation as below.
Depreciation = 30% of (40% of ₹50,000) = ₹6,000
Now obviously, if we reduce the cost of asset by 30% (basis its estimated business usage), and then we put the amount in the Schedule DPM, it will result in the same amount of depreciation.
Adjusted cost of asset = 30% of ₹50,000 = ₹15,000
Depreciation = 40% of ₹15,000 = ₹6,000
I would like to know if this type of adjustment to the cost of asset, basis its estimated business usage percentage, is a generally accepted accounting practice for income-tax purposes.
PS:
I do not have a commerce background. Thanks in advance for any helpful input.
CAclubindia
