Master in Accounts & high court Advocate
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Joined December 2011
Provision for depreciation is different in Income tax from the companies act so separate calculation of depreciation according to income tax is required. As per companies act depreciation is calculated on the basis of how many days asset is used whereas per income tax act it will be calculated on the basis of full rate - half rate and block of assets.
What is block of assets and how depreciation is calculated on block?
These are two block of the asset whatever asset purchased or sold by the assessee should be added or deducted within these blocks of the asset.
- Tangible asset includes building, machinery, plant, office equipment, furniture.
- Intangible asset includes patents, goodwill, know-how, copyright, license.
Full rate – half rate
If the asset is used for the period of 180 or more than 180 days in the previous year then it will be eligible for full rate depreciation whatever applicable to the asset. If the asset is used for less than 180 days then it will depreciated by half rate.
Calculation of depreciation
As per income tax depreciation is calculated on WDV. In the case asset is acquired during the year, actual cost of asset will become WDV for calculation. In the case asset is acquired before previous year, the WDV will be actual cost to the assessee less the aggregate of all the depreciation actually allowed as deduction in respect of depreciation. If there is any unabsorbed depreciation, the same will considered as deemed depreciation actually allowed.
Opening WDV
Less- sale of asset
Add- purchase of asset
Net block-(WDV on which depreciation will be calculated)
(In above calculation if asset is used for less than 180 days, WDV less purchased asset eligible for half rate= full rate and remaining will be depreciated by half rate.)
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