Additional Depreciation on Plant and Machinery

Table of Contents

  • Basics
  • Additional Depreciation - Backward Areas
  • Restriction on Claim for Depreciation
  • Use of Assets for Business or Profession

Additional Depreciation - Normal Areas 

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, or in the business of generation, transmission or distribution of power.

Additional deduction of 20% of the actual cost of the asset can be claimed as deduction.


Additional Depreciation rates for New machinery or plant in normal (20%) and backward areas (35%) as per Sec 32

Addition Depreciation Rate in Backward Areas

Where an assessee, sets up an,

  • undertaking or
  • enterprise

for manufacture or production of any article or thing, on or after the 1st day of April, 2015, in any backward area notified by the Central Government in this behalf,

  •  in the State of Andhra Pradesh or
  •  in the State of Bihar or
  •  in the State of Telangana or
  •  in the State of West Bengal

and acquires and installs any new machinery or plant (other than ships and aircraft),

for the purposes of the said undertaking or enterprise,

during the period from 1 April, 2015 to 1 April, 2020 in the said backward area,

then, they can claim additional depreciation at the rate of 35% of the actual cost of the asset.

Restrictions

Provided further that no deduction shall be allowed in respect of—

  • (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or
  • (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or
  • (C) any office appliances or road transport vehicles; or
  • (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;

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:

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

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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