Article Assisstant
2485 Points
Joined November 2008
Carry forward and set off of depreciation [Section 32(2)]
Section 32(2) provides for carry forward of unabsorbed depreciation. Where, in any previous
year the profits or gains chargeable are not sufficient to give full effect to the depreciation
allowance, the unabsorbed depreciation shall be added to the depreciation allowance for the
following previous year and shall be deemed to be part of that allowance. If no depreciation
allowance is available for that previous year, the unabsorbed depreciation of the earlier
previous year shall become the depreciation allowance of that year. The effect of this
provision is that the unabsorbed depreciation shall be carried forward indefinitely till it is fully set off.
However, in the order of set-off of losses under different heads of income, effect shall first be given to business losses and then to unabsorbed depreciation.
The provisions in effect are as follows:
• Since the unabsorbed depreciation now falls part of the current year’s depreciation, it can
be set off against any other head of income.
• The unabsorbed depreciation can be carried forward for indefinite number of previous
years.
• Set off will be allowed even if the same business to which it relates is no longer in
existence in the year in which the set off takes place.