DEPRECIATION under Lease Agreement

The treatment of depreciation depends on the type of lease arrangement: finance lease, operating lease, and hire purchase. The rules vary based on whether the asset is owned by the lessor (the party providing the asset) or the lessee (the party using the asset). Here's how depreciation is typically handled in each case:

1. Finance Lease:

   • Lessor: In a finance lease, the lessor retains ownership of the asset during the lease term, but the lessee has substantially all the risks and rewards associated with ownership. In this case, the lessor usually claims depreciation on the asset since they own it.
   • Lessee: The lessee doesn't usually claim depreciation on the asset in a finance lease because they don't have legal ownership. Instead, they account for the lease payments as an expense over the lease term.

     For further more detailed information on this topic visit:Depreciation under the Income Tax

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