Depreciation
Depreciation is normally calculated on the declining balance method at
varying rates and is available for a full year, irrespective of the
actual period of use of the asset in the year of the acquisition of the
asset. Depreciation is allowed at half the normal rate, if the as set is
used for less than 180 days in that year. No depreciation is available
in the year of the sale of the asset.
Depreciation is calculated on the opening written-down value of the
block of assets plus the additions to the block less the sale proceeds/
scrap value of selections from the block. Depreciation at 100% is
allowed in respect of machinery and equipment the unit cost of which
does not exceed Rs. 5,000. No depreciation is allowed in respect of
motorcars manufactured outside India, unless they are rental cars for
tourists or where such motorcars are used outside India for the purposes
of business. No depreciation is allowed on plant and machinery if actual
cost is otherwise allowed as a deduction in one or more years under an
agreement entered into with the Central Government for prospecting, etc.
of mineral, oil. The rates applicable for the accounting year ending
March 1996 :
| Blocks of Assets |
Depreciation Rates (%) |
Buildings
-- Dwelling units with plinth area not exceeding 80 square meters
and hotels |
20 |
| -- Mainly
residential |
5 |
| -- Others |
10 |
| Purely temporary
structures |
100 |
Machinery and
Equipment
-- General |
25 |
| Motorcars, other
than those used in a business of hire, acquired after April 1, 1990
|
20 |
| Airplanes, air
engines; specified moulds; air and water pollution control
equipment; solid waste control equipment; motor buses; motor trucks;
motor taxis used in a business of hire |
40 |
| Specified
energy-saving/ renewable energy devices; specified machinery used in
mines and quarries, mineral oil concerns, salt and sugar works, iron
and steel industries, glassworks, etc. |
100 |
Furniture and
Fittings
-- General |
10 |
| Special furniture
and fittings used in hotels, cinemas, etc. |
15 |
| Oceangoing ships,
including dredgers, etc., and speedboats |
20 |
| Inland water vessels
|
10 |
Set-off & carry forward of losses
Business losses incurred in a tax year can be set off against any other
income earned during that year, except capital gains. In the absence of
adequate profits unabsorbed depreciation can be carried forward and set
off against profits of the next assessment year, without any time limit.
Unabsorbed business losses can be carried forward and set off against
business profits of subsequent years for a period of eight years; the
unabsorbed depreciation element in the loss can however, be carried
forward idefinitely. However, this carry forward benefit is not
available to closely-held (private) companies in which there has been no
continuity of business or shareholding pattern. Also, any change in
beneficial interest in the shares of the company exceeding 51 per cent
disqualifies the private company from the carry forward benefit.
