Additional Depreciation

Additional Depreciation on Plant and Machinery

Additional Depreciation can be claimed for New Plant and Machinery (other than Ships and Aircraft) acquired and installed after 31.03.2005 by the assessee engaged in the business of manufacture or production of any article or thing. Additional deduction of 20% of the actual cost of the asset can be claimed.

However, deduction shall not be allowed in respect of the following Machinery and Plant, which -

  1. before installation by the assessee, used either in India or outside India by any other person.

  2. is installed in any Office Premises or any Residential Accommodation (including Guest Houses).

  3. is in the nature of Office Appliances or Road Transport Vehicles.

  4. is allowed as deduction (the whole amount) either as depreciation or otherwise, in computing the income chargeable under the head "Profits and Gains of Business or Profession".

Further, this additional Depreciation can be claimed only by those assessees, who have not opted for the special provision for depreciation of assets involved in generation or generation and distribution of power.

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Restriction on Claim for Depreciation

From Assessment Year 2002-2003, depreciation is mandatory in the computation of the income under the head 'Profits and Gains from Business or Profession'.

Where an asset acquired by the assessee during the previous year is put to use for a period less than 180 days in that previous year, then the depreciation (including additional depreciation thereof) shall be restricted to 50% of the normal depreciation.

Such restriction is not applicable for assessment year 1999-2000, in respect of commercial vehicles acquired on or after 01.10.1998 but before 01.04.1999 and put to use before 01.04.1999.

Depreciation is not available in respect of the following assets: -

A foreign motor car acquired after 28.02.1975 but before 01.04.2001, unless it is used:

  1. In a business of running it on hire for tourists; or

  2. Outside India in his business or profession in another country;

Any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42.

The aggregate amount of depreciation claimed by: -

  1. the predecessor and successor - in the case of successions of the nature referred to in sections 47(xiii), 47(xiv) or 170

  2. the amalgamating company and the amalgamated company - in the case of amalgamation

  3. the demerged company and the resulting company - in the case of demerger

shall not exceed the depreciation allowable, computed as if the succession or amalgamation or demerger has not taken place.

The depreciation so determined shall be apportioned between them, in the ratio of the number of days for which they used the assets.

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Use of Assets for Business or Profession

Used for the business or profession includes the asset which is ready for use. Ready to use asset is eligible for depreciation under section 32.

Where the assets are not used exclusively for the purpose of business or profession then the fair proportionate part of such assets used for the purpose of business or profession shall be allowed as depreciation.

The introduction of block of assets concept does not waive the responsibility of compliance with section 38.

Even, in such cases, the assets have to be classified as

  1. those which are exclusively used for business or profession and

  2. those which are not exclusively used for business or profession.

A suitable disallowance is required to be made in this regard.

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Related Topics

Written Down Value »

Depreciation Rates »

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