Trying to understand depreciation?

Mr.Jayesh

Expenses are two types (1) Revenue Expenses and (2) Capital Expenses.

Payment of salaries to staff, conveyance, rent for the business premises, fees paid to chartered accountant, advocate and staff welfare expenses fall under the category of Revenue Expenses.  You will have the benefit on these expenses for the period you have spent.

The expenditure incurred for acquiring  fixed assets such as buildings, machinery etc., fall under the category of Capital Expenses.  The benefit incurred on capital expenditure is not limited to the period in which the capital asset is acquired.  You can avail the benefit out of that capital expenditure (machinery, building etc., ) in the future also. 

Keeping this fact  in mind and to have a correct picture of profit or loss for a particular period the depreciation is being claimed on the expected life of the asset. 

By doing so you are claiming matching expenses for matching income.

If you claim the entire cost of acquisition of the asset i.e. the cost of machinery or building you have claimed the expenditure of the future years' also in the current year.  This method is not accepted.

Best Wishes

Sathikonda

Okay, Thanks for the reply.

So, if I understand it correctly, revenue expenses are expensed in the same year that they are incurred whereas capital expenses are expensed over the life of the fixed asset.

These are two different accounting methods - Rs. 1 lakh expensed as capital expense DOES NOT save taxes over Rs. 1 lakh expensed as revenue expense.

Thanks,

Jayesh

By no means, assessee can claim capital expenditure from thhe profit and gains from business and profession. In case, any asset is eligible for 100% depreciation in the year 1 itself, then only, it can be allowed.