My one of the client follow IND AS 116, they created ROU assets and lease liability. the depreciation of ROU assets charge to P&L account and Finance expenses (interest) on Lease liability also charged to P&L.
How I give tax treatment of that as per income tax act
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Quick Summary
This discussion clarifies the tax treatment for ROU assets and lease liabilities under IND AS 116, as per the Income Tax Act, 1961. Depreciation on ROU assets is deductible under Section 32, while finance expenses (interest) on lease liabilities are deductible under Section 36(1)(iii). It's crucial to adhere to Income Tax Rules for depreciation calculations and ensure interest is business-related and not capitalised.
As per the Income Tax Act, 1961, the tax treatment for IND AS 116 (Leases) would be as follows: 1. Depreciation on ROU (Right-of-Use) assets: - Allowable as a deduction under Section 32 (Depreciation) - Charge to Profit & Loss (P&L) account 2. Finance expenses (interest) on Lease liability: - Allowable as a deduction under Section 36(1)(iii) (Interest expenses) - Charge to P&L account Additionally, consider the following: - Ensure the depreciation is calculated as per the Income Tax Rules, 1962 ( Rule 5 - Depreciation) - Interest expenses are allowable only if they are related to the business and not capitalized - Keep records of the lease agreement, ROU assets, and lease liability for tax audit purposes
As per the Income Tax Act, 1961, the tax treatment for IND AS 116 (Leases) would be as follows: 1. Depreciation on ROU (Right-of-Use) assets: - Allowable as a deduction under Section 32 (Depreciation) - Charge to Profit & Loss (P&L) account 2. Finance expenses (interest) on Lease liability: - Allowable as a deduction under Section 36(1)(iii) (Interest expenses) - Charge to P&L account Additionally, consider the following: - Ensure the depreciation is calculated as per the Income Tax Rules, 1962 ( Rule 5 - Depreciation) - Interest expenses are allowable only if they are related to the business and not capitalized - Keep records of the lease agreement, ROU assets, and lease liability for tax audit purposes
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