Vide sec 32 of the Income Tax Act, 1961 depreciation calculated as per the Written Down Value method of is allowed (Straight Line Method is available only to companies engaged in power generation or generation & distribution).Schedule II to the Companies Act, 2013 prescribes three methods of depreciation - Straight Line Method, Written Down Value Method & Units of Production Method.
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As per Section 32(1) of the IT Act depreciation should be computed at the prescribed percentage on the WDV of the asset, which successively is calculated with regard to the particular cost of the assets. within the context of computing depreciation, it's important to know the meaning of the term ‘WDV’ & ‘Actual Cost’. WDV under the tax Act means: Where the asset is acquired within the previous year, the particular cost of the asset shall be treated as WDV. Where the asset is acquired in earlier year WDV shall be adequate to the particular cost incurred less depreciation actually allowed under the Act.
Under Income tax Act 1961, depreciation on assets is allowed as an expense to the corporate while arriving at income under the top of Income from business and profession, from the year during which asset is put to use for the primary time and is calculated on the idea of the block of assets at the rates laid out in the tax act therein regard.
Under Companies Act, 2013, The depreciation is calculated on the idea of the useful lifetime of assets and not on the idea of the speed of depreciation. Reference Chart of Useful Lives – https://www.mca.gov.in/SearchableActs/Schedule2.htm In taxation, depreciation refers to the reduction in net taxable income to scale back the quantity of tax payable by the corporate.
Ok, I mean depreciation rates as per income tax and company act are different, so how companies decide d which one method we used. And if we purchased capital goods, can we take both input tax and deprication on it.
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