Additional Depreciation Under Income Tax Act

No such additional deduction will be allowed in respect of machinery or plant—

1. Used by any other person in India or outside India before its installation.
2. Installed in any office premises or any residential accommodation,
3. including a guest house.
4. Any office appliances or road transport vehicles.
5. The whole of actual cost of which is allowed as a deduction in computing income for tax purposes in any one previous year.

The Provision inserted vide Finance Act, 2015 with effect from 01.04.2016 provides for enhanced depreciation to the backward areas. 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 on this behalf-

1. in the State of Andhra Pradesh; or
2. in the State of Bihar; or
3. in the State of Telangana; or
4. in the State of West Bengal

Such Assessee acquires and installs new machinery, other than ships and aircraft, then the additional depreciation is available to such undertaking or enterprise for the period from 01.04.2015 to 31.03.2020 at 35% instead of 20%.

Non Applicability

1. On the following Plant and Machinery (P&M) no Additional Depreciation can be claimed-
2. Additional Depreciation is only on Plant and Machinery and not other assets like Furniture and Buildings.
3. Ships and Aircrafts
4. Second hand or used P & M
5. P & M used in office/Home/Guesthouse
6. Office Appliances
7. Road Transport Vehicles(Car etc)
8. 100% Depreciable Assets (like Pollution Control Equipments)

Additional Depreciation is only for factories or power generation units, not for dealer or service providers.

Computation

For Machinery, General Rate of Depreciation is 15%. In addition, 20% Depreciation will be available in the first year for Industrial Undertaking and Power Generation Distribution business. Hence, total 15%+20%=35% Depreciation will be available in the first year However, if assets used for less than 180 days, then ½ of 35%(15%Normal Dep +20% Additional Dep) will be available. Balance half of both Normal and Additional Depreciation can be claimed in next year Case- ABC Ltd., a manufacturing concern, furnishes the following particulars:

1. Opening Written Down Value (WDV) of plant and machinery as on 1.4.2017 is Rs. 30,00,000
2. New plant and machinery purchased and put to use on 08.06.2017 – Rs. 20,00,000
3. New plant and machinery acquired and put to use on 15.12.2017 – Rs. 8,00,000
4. Computer acquired and installed in the office premises on 2.1.2018  – Rs. 3,00,000

The amount of depreciation and additional depreciation under Income Tax Act for the A.Y. 2018-19 is computed as follows- There are 2 blocks namely,

1. Plant and Machinery: Depreciation Rate 15%
2. Computer: Depreciation Rate 60%

However, Additional depreciation is available only on Plant and Machinery Full 20% Additional Depreciation on P&M acquired on 08.06.2017 will be available and 10% Depreciation on P&M acquired on 15.12.2017 *It is not available on computers as it is used in an office.

Name of Asset	Block 1 Machine	Block 2 Computer
Depreciation Rate	15%	60%
Opening Value (Rs.)	3000000	0
Add – Purchases 180 days or more Purchase Less than 180 days	2000000   800000	300000
Less – Sales During Year	0	0
Closing Value before Depreciation	5800000	300000
Depreciation	810000	90000
	(3000000+2000000)*15% +800000*15%*1/2	300000*60%*1/2
Additional Depreciation	480000	0
	(2000000*20%)+(800000*10%)	(Used in Office)
Closing WDV (after Depreciation)	4510000	210000