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Providing tax on the same year of fixed assets purchased

HARIOM GUPTA (chief manager) (44 Points)

08 May 2012

We purchased chairs (furniture) for our company. Invoices are produced by the vendor quoting cost of chair Rs 9300 plus VAT/CST Rs.1176.50. As per the income tax act the depreciation rate on furniture is 10%. Please advise

depreciation 10% is available on Rs. 10476.50 which works out Rs.1047.65

or depreciation 10% is available on Rs. 9300.00 which works out Rs.930.00 and tax Rs.1176.50 treating expenses for the year of purchase ie 100% provision.

or both methods are acceptable under Income Tax Act please.

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6 Replies

rakesh kapil (CA FINAL) (41 Points)
Replied 08 May 2012

as per section 43(1), •Actual cost means the actual cost of the asset to the assessee, i.e inclusive all local taxes paid...

There is an explanation no 9 to section 43(1): Asset acquiredwhich is subject to levy of excise duty/custom duty in respect of which CENVAT credit is available........So much of the duty in respect of which a claim of credit has been made and allowed under the Central Excise Act, 1944 shall not form part of actual cost.

alternatively one can claim the duty paid as cost and claim depreciation on the same..in that case one cant avail CENVAT credit on those duties

this is not the case with you.....hence you can claim depreciation on full amount

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HARIOM GUPTA (chief manager) (44 Points)
Replied 08 May 2012

Sir

Is it possible to provide depreciation @ 10% each year as applicable to furniture on the actual cost of chair that is Rs 9300 and 100% on tax amount (CST/VAT) in the year of purchase please. I want to provide tax amount in a year

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 08 May 2012

Dear Sir,

You have to provide depreciation @ 10% on full amount Rs. 10476.50 as explained by Mr. Kapil as you are not claiming credit for the VAT. It is not possible to claim 100% for tax in the first year itself and @ 10% on 9300. It will be @ 10% on full amount.

Alok Siddapur (Consultant) (229 Points)
Replied 08 May 2012

In case of company, you have to capitalise VAT/CST because as per AS-10, only those taxes which are reufundable from the department need not be capitlised. In your case since it is purchase of furniture, according to me you can take VAT credit only if you are delaing or manufacturer of furnitures, Most of the VAT Acts do not allow VAT credit on furniture. So if you violate AS-10 you have to disclose the same as per Companies Act.

In case of non- company, you can have accounting policy in which you do not take credit on fixed assets. This may be risky.

HARIOM GUPTA (chief manager) (44 Points)
Replied 08 May 2012

We are consumer as chairs are purchased for the office use. Whether it is compulsory to capitalise tax . Is it will be in correct to provide 100% of tax in a year (year of purchase)