{"id":24955,"date":"2019-09-25T15:00:10","date_gmt":"2019-09-25T09:30:10","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=24955"},"modified":"2019-09-24T18:54:39","modified_gmt":"2019-09-24T13:24:39","slug":"how-to-charge-depreciation-on-assets-of-business-complete-review","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/how-to-charge-depreciation-on-assets-of-business-complete-review\/","title":{"rendered":"How to Charge Depreciation on Assets of Business? Complete Review"},"content":{"rendered":"<p class=\"has-drop-cap\">Depreciation means a reduction in the real value of tangible used\nby the assessee in the course of business or profession. Depreciation can be\nclaimed as a deduction by the assessee for investing in assets like furniture,\nplant &amp; machinery or other such tangible assets, for the previous year. <\/p>\n\n\n\n<p>The concept of depreciation was introduced under the Income Tax\nAct for writing off the cost of an asset over its useful life. Depreciation is\na compulsory deduction that can be claimed by a taxpayer. There are different\nmethods\nfor calculating depreciation on assets, the\nmost popular ones being &ndash; Straight-line method (SLM) and the Written Down Value method (WDV). <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Depreciation &ndash; An Overview<\/strong><\/h2>\n\n\n\n<p><strong><em>Section 32 of the Income Tax Act, 1961<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/The_Income-tax_Act,_1961\">[1]<\/a><\/sup> regulates &amp; governs the depreciation in respect of:<\/p>\n\n\n\n<ul><li><strong><em>Tangible assets<\/em><\/strong> such\nas building, furniture, plant &amp; machinery, etc<\/li><li><strong><em>Intangible assets<\/em><\/strong> such\nas patent, trademark, copyrights, know-how, licenses, franchises, etc.<\/li><\/ul>\n\n\n\n<p><strong><em>It is pertinent to\nmention that these assets must be used in connection\nwith business or profession and should be\nowned, either wholly or partly, by the assessee.<\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Allowance of\nDepreciation<\/strong><\/h2>\n\n\n\n<p>Allowance of depreciation is calculated as per the WDV method with\nthe\nexception of an undertaking that is engaged in the generation of power or distribution of\npower.<\/p>\n\n\n\n<ul><li>If the undertaking is engaged in the business of\ngeneration of power or distribution of power, depreciation can be calculated as\na percentage of the actual cost. <\/li><li>In any other case, depreciation can be\ncalculated as a percentage of written down value.<\/li><\/ul>\n\n\n\n<p>Depreciation allowance is apportioned in case of amalgamation or\ndemerger of two companies. Such allowance is proportionate between an\namalgamated and amalgamating company in case of amalgamation. And in the case\nof demerger, it is proportioned between demerged and the\nresulting company.<\/p>\n\n\n\n<p>As per the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Accounting&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Accounting is the language of business, serving as the backbone of financial management and decision-making. It involves the systematic recording, analysis, and reporting of financial(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/accounting\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Accounting<\/a> Standard-19, in the case\nof financial lease transactions, the right to\nclaim depreciation is allowed to lessee as he exercises such rights in the\ncapacity of the owner. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Rates of Depreciation <\/strong><\/h2>\n\n\n\n<p>Following are the different rates of depreciation depending upon\nthe class of assets as made applicable with effect from 01.04.2017:<\/p>\n\n\n\n<ol><li>Buildings\nthat are used for a residential purpose other than hotels &amp; boarding: <strong>5%<\/strong><\/li><li>Buildings\nother than mentioned above: <strong>10%<\/strong><\/li><li>Building\nfor installing plants for water supply projects, water treatment system pr for\nproviding infrastructure facilities: <strong>40%<\/strong><\/li><li>Temporary\nerection such as wooden structure:<strong> 40%<\/strong><\/li><li>Furniture\n&amp; electrical fittings:<strong> 10%<\/strong><\/li><li>Motor\ncars: <strong>15%<\/strong><\/li><li>Motor\nbus, lorries or any motor used for running them on hire <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>basis<\/a>: <strong>30%<\/strong><\/li><li>Airplanes:<strong> 40%<\/strong><\/li><li>Vehicles\nused for commercial purpose &amp; put to the use of business or profession: <strong>40%<\/strong><\/li><li>Machinery\nused for the delivery of raw water from the place of supply to the plant: <strong>15%<\/strong><\/li><li>Molds\nused in rubber &amp; plastic manufacturing factories: <strong>30%<\/strong><\/li><li>Pollution\ncontrol equipment, such as:<\/li><\/ol>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>\n  Air pollution control\n  <\/td><td>\n  <strong>40%<\/strong>\n  <\/td><\/tr><tr><td>\n  Water pollution control\n  <\/td><td>\n  <strong>40%<\/strong>\n  <\/td><\/tr><tr><td>\n  Solid waste control\n  <\/td><td>\n  <strong>40%<\/strong>\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<ul><li>Plant &amp; machinery used in semiconductor\nbusiness: <strong>30%<\/strong><\/li><li>Plant\n&amp; machinery used for the manufacture of the article by the use of any\ntechnology or know-how: <strong>40%<\/strong><\/li><li>Plant\n&amp; machinery used in weaving, processing &amp; garment sector of textile\nindustries: <strong>40%<\/strong><\/li><li>Plant\n&amp; machinery installed in the project of water supply &amp; water treatment:<strong> 40%<\/strong><\/li><li>Life-saving\nmedical equipment: <strong>40%<\/strong><\/li><li>Containers made of glass:<strong> 40%<\/strong><\/li><li>The plastic used as refills:<strong> 40%<\/strong><\/li><li>Computers:<strong>\n40%<\/strong><\/li><li>Books\nowned by professionals such as annual publications or any other books: <strong>40%<\/strong><\/li><li>Books\nowned by any individual who carries on the business of lending libraries: <strong>40%<\/strong><\/li><li>Ships:<strong>\n20%<\/strong><\/li><li>Intangible\nassets such as know-how, patent, trademark, copyrights, licenses, franchise,\nand other similar rights:<strong> 25%<\/strong><\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/method-business-valuation-india\/\" target=\"_blank\" rel=\"noopener noreferrer\">Methods of Business Valuation in India<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Rates of Depreciation\nbefore <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Amendment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An &amp;quot;amendment&amp;quot; refers to the formal change or correction of a legal document, often involving additions, variations, or deletions to address irregularities or clarify points in an agreement.(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/amendment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>amendment<\/a> w.e.f 01.04.2017<\/strong><\/h3>\n\n\n\n<p>Following\nwere the earlier rates of depreciation that prevails before amendment dated 1<sup>st<\/sup>\nApril 2017:<\/p>\n\n\n\n<ol><li><strong>Furniture<\/strong> includes all sorts of\nthe article for decorating &amp; convenience of building &amp; premise of\nbusiness. It includes electrical fitting as well, such as wiring, switches,\nfans, etc.<strong><em> The rate of depreciation for furniture was 10%.<\/em><\/strong><\/li><li><strong>Plant &amp; machinery<\/strong>\nincludes AC, service lines, electrical transformer, cylinders for storing gas,\netc. Depreciation for plant &amp; machinery falls under seven different\ncategories:<\/li><li>Motor\ncars not used in the business of running them on hire: <strong>15%<\/strong><\/li><li>Motor\nbuses used in the business of running them on hire: <strong>30%<\/strong><\/li><li>Plant\n&amp; machinery such as airplanes, commercial vehicle, life-saving instruments,\netc.: <strong>40%<\/strong><\/li><li>Plant\n&amp; machinery such as computers, books owned by professional, gas cylinders,\netc.: <strong>60%<\/strong><\/li><li>Plant\n&amp; machinery such as rollers, windmill, electric generators, etc.: <strong>80%<\/strong><\/li><li>Plant\n&amp; machinery used in water supply projects or water treatment system, wooden\nparts used in artificial silk factories, books owned by professional for annual\npublications, etc.: <strong>100%<\/strong><\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Methods of\nDepreciation<\/strong><\/h2>\n\n\n\n<p>The method for calculating the depreciation can vary as per the\nclass of assets. The useful life of the assets also varies as per the different\nclasses of assets. Calculation of depreciation differs as per accounting &amp;\ntaxation purpose based on asset-type and\nindustry in which such asset is being used. <\/p>\n\n\n\n<p><strong>Following are the methods for calculating depreciation:<\/strong><\/p>\n\n\n\n<ul><li><strong>As per\nCompanies Act, 1956:<\/strong><strong><\/strong><\/li><li>Straight Line<\/li><li>Written Down Value <\/li><\/ul>\n\n\n\n<ul><li><strong>As per\nCompanies Act, 2013:<\/strong><strong><\/strong><\/li><li>Straight Line<\/li><li>Written Down Value <\/li><li>Unit of Production <\/li><\/ul>\n\n\n\n<ul><li><strong>As per\nthe Income Tax Act, 1961:<\/strong><strong><\/strong><\/li><li>Straight Line for power generating units.<\/li><li>Written Down Value (Block Wise)<\/li><\/ul>\n\n\n\n<p><strong>Written Down Value\nMethod<\/strong><\/p>\n\n\n\n<p>As per the Income Tax Act, 1961, written down value is calculated\nbased on the actual cost of an asset.<\/p>\n\n\n\n<ul><li><strong><em>If an asset is acquired in the previous year<\/em><\/strong>: <\/li><\/ul>\n\n\n\n<p>Actual\nCost of an asset = Written Down Value<\/p>\n\n\n\n<ul><li><strong><em>If an asset is acquired earlier than the\nprevious year:<\/em><\/strong><strong><em><\/em><\/strong><\/li><\/ul>\n\n\n\n<p>Written\nDown Value = Actual Cost &ndash; Depreciation Allowed.<\/p>\n\n\n\n<p>As per <strong><em>section 32 of the Income Tax Act, 1961,<\/em><\/strong> depreciation shall be\ncalculated at the specified rate of percentage on written down value.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Claim of Depreciation<\/strong><\/h2>\n\n\n\n<p>Assessee can avail the deduction of depreciation only if he\nsatisfies the following conditions:<\/p>\n\n\n\n<ol><li>The assessee must own the asset, wholly or partly.<\/li><li>Such an asset must be put to use in business or profession. <\/li><li>Depreciation would be on a proportionate basis in case an asset is used partly for business purposes and partly for other purposes.&nbsp; <\/li><li>In case if the asset is owned partly, it means there are two owners of the same asset. Depreciation can be claimed by a particular co-owner to the extent of the value of an asset owned by such owner.<\/li><li>Assessee cannot claim the depreciation on the cost of land.<\/li><li>Depreciation is a compulsory allowance with effect from AY 2002-03 for all the assessees engaged in business or profession. It is allowed or deemed to be allowed irrespective of the fact whether the taxpayer claims the same in profit &amp; loss account or not.<\/li><li>Depreciation can be claimed for the entire block of assets. <\/li><li>Depreciation is calculated from the date when an asset is being put to use and not the date when it was acquired.<\/li><li>It shall be allowed to the extent of 50% of the amount calculated in case an asset is put to the use for only half a year in the preceding year.<\/li><\/ol>\n\n\n\n<div class=\"read\"><p><b>Read More:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/asset-purchase-agreement-sample-format\/\" target=\"_blank\" rel=\"noopener noreferrer\">Asset Purchase Agreement sample Format<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Depreciation means a reduction in the real value of tangible used by the assessee in the course of business or profession. Depreciation can be claimed as a deduction by the assessee for investing in assets like furniture, plant &amp; machinery or other such tangible assets, for the previous year. The concept of depreciation was introduced [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":24969,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1383],"tags":[2765,2764],"acf":{"service_id":"0"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How to Charge Depreciation on Assets of Business - Enterslice<\/title>\n<meta name=\"description\" content=\"Depreciation is the process of recording the reduction in the value of the assets owned by the business lasting over a period of time.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/how-to-charge-depreciation-on-assets-of-business-complete-review\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Charge Depreciation on Assets of Business - Enterslice\" \/>\n<meta property=\"og:description\" content=\"Depreciation is the process of recording the reduction in the value of the assets owned by the business lasting over a period of time.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/how-to-charge-depreciation-on-assets-of-business-complete-review\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-25T09:30:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-09-24T13:24:39+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/Concept-of-Depreciation.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Savvy Midha","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/10\/Savvy-Midha.jpg","authorDescription":"\"Savvy Midha holds the degrees of Bachelor of Commerce(honors), LL.B and Company Secretary. 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