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Difference in it act and companies act

Vineet (Assistant Manager) (140 Points)

17 August 2012

While working on IT dep schedule I noticed that we have to take sales consideration in IT and purchase value of asset in companies act , in deduction or sales, while calculating depreciation.

For example

suppose if I acquired an asset in 2010 for Rs 100,000 and sold in 2011 for Rs 150,000.

In that case while calcuating deprecaiton as per companies act Rs 100,000 deduct from the gross block while calculating depreciation as per income tax act we have to deduct Rs 200,000.

Please correct if I am wrong as I have to submit that soon.

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2 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 18 August 2012

Under the companies Act, if the sale of the asset exceeds it's cost then the excess is credited tot eh P&L account. Under the co's act if the block ceases to exist after the sale of asset then only the profit /loss is calculated on the sale. Under the I-t act Depreciation is calculated by taking the opening WDV adding to it the assets purchase during the year. deducting the assets sold during the year. On the balance then depreciation is calculated by applying the rates applicable to the block.

Vineet (Assistant Manager) (140 Points)
Replied 18 August 2012

I want to brief this in simpler tems as I have already submitted the required report. while calcuating closing block we have to consider the purchase price as per comapnies act and sales consideration as per IT act.

Apart from this as u said about profit calcuation thats different. Thats already cleared how to calcuate the profit.

I love to add one more point that difference in tax rates as per both the tax is treated as DTA or DTL.