Computation under the Companies Act. Depreciation is computed using either the straight-line method (where the amount of depreciation is uniform for all the years) or the written-down value method (where the amount of deprecation is highest in the first year and goes on reducing year after year).
Under the Income Tax Act. Depreciation is charged on the ‘block of assets’, and not on individual assets. The block represents the group of assets for which the same rate of depreciation applies. Under the Income Tax Act, depreciation is computed using the written-down value method, except in case of an undertaking engaged in generating and distributing power.
While the actual cost of new asset is added to the block, the amount received on the sale of an asset (including scrap value) is reduced from it. Depreciation at the prescribed rates is computed on the written-down value of the block as on the last day of the financial year–typically 31 March. This value is the aggregate cost of acquisition of the assets in a block as reduced by the depreciation charged in previous years.
New Rates. The rates of depreciation under the Income Tax Act are not linked to the useful life of the asset. Mobile phones are treated as plant and machinery, and are entitled to depreciation at the rate of 15 per cent.
Condition for allowability
The following fundamental conditions need to be fulfilled to claim depreciation:
(1) The person claiming depreciation must be the owner or the co-owner of the asset;
(2) The asset must be(put to use) used in the business. If it is only partly used for business, depreciation would be allowable on pro-rata basis;
(3) The asset must be used during the relevant financial year. If an asset is purchased and put to use for less than 180 days, that is, on or after the first day of October, only 50 per cent of the normal depreciation will be allowed in that year. In the subsequent years however, the asset will be subject to depreciation at the normal rates. So if an assessee buys a machine on 1 September 2009 but does not put it to use before 1 December 2009, he will be allowed depreciation at 7.5 per cent (instead of the normal 15 per cent) for the financial year ended 31 March 2006. The crucial date is the date of putting the asset to use.
Suppose a Person purchased a Car on 31st March and put to use on same date even then he can claim 50% of the depreciation of the full year i,e 7.5%(50% of 15%)
Download Depreciation chart Under Income Tax Act 2010-11 and Companies act 2010-11
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