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As per the Income Tax Act, depreciation is allowed as an expense for the computation of income. There are two methods of calculating depreciation, i.e. Written down Value (WDV) method and Straight Line Method (SLM). Income tax allows WDV method of depreciation. Also, income tax allows to deduct additional depreciation as explained below:
In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assessee who is engaged in the business of manufacture or production of any article or thing – additional depreciation under Income Tax Act of 20% of actual cost shall be allowed.
From A.Y. 2013-14 the same is also allowed to assessee engaged in the business of generation or generation and distribution of power, where the depreciation is provided on WDV method as per Appendix I.
From assessment year 2017-18 the same is also allowed to the assessee engaged in the business of transmission of power.
Where the asset is used for less than 180 days then 50% depreciation i.e, 1/2 of 20% (i.e. 10%) is available (Balance 50% of Additional Depreciation can be claimed in next year)
No such additional deduction will be allowed in respect of machinery or plant—
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-
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%.
On the following Plant and Machinery (P&M) no Additional Depreciation can be claimed-
Additional Depreciation is only for factories or power generation units, not for dealer or service providers.
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:
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,
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.) | 30,00,000 | 0 |
| Add – Purchases 180 days or more Purchase Less than 180 days | 20,00,000 8,00,000 | 0 3,00,000 |
| Less – Sales During Year | 0 | 0 |
| Closing Value before Depreciation | 58,00,000 | 3,00,000 |
| Depreciation | 8,10,000 | 90,000 |
| (30,00,000+20,00,000)*15% + 8,00,000*15%*1/2 | 3,00,000*60%*1/2 | |
| Additional Depreciation | 4,80,000 | 0 |
| (20,00,000*20%)+(8,00,000*10%) | (Used in Office) | |
| Closing WDV (after Depreciation) | 45,10,000 | 2,10,000 |
