Depreciation is allowed to arrive at real business profits, determine the book value of assets over time, and know the real position of assets to arrange for replacements. Depreciation can be claimed for assets owned and used for business that were acquired after April 1, 1998. Assets are grouped into blocks based on category and depreciation rate, and depreciation is calculated using the block of assets, actual cost basis, or written down value basis. Rates vary from 5-100% depending on the asset type, and additional depreciation may be claimed for new machinery used in manufacturing.

1. DEPRECIATION
MODULE - III

2. WHY DEPRECIATION IS ALLOWEDWHY DEPRECIATION IS ALLOWED
To arrive at real business profit.To arrive at real business profit.
To determine the book value of assetTo determine the book value of asset
in a given period of time.in a given period of time.
To know the real position of assets inTo know the real position of assets in
order to arrange for its replacementsorder to arrange for its replacements
or renewal after a period of time.or renewal after a period of time.

3. WHEN AN ASSESSEE CAN CLAIMWHEN AN ASSESSEE CAN CLAIM
DEPRECIATION?DEPRECIATION?
Asset should be owned by theAsset should be owned by the
assessee.assessee.
Asset should be used for the purposeAsset should be used for the purpose
of business or profession.of business or profession.
Asset should be used during theAsset should be used during the
current previous year 2012 – ’13.current previous year 2012 – ’13.
Depreciation can be claimed forDepreciation can be claimed for
tangible and intangible assets.tangible and intangible assets.

4. BLOCK OF ASSETSBLOCK OF ASSETS
 It refers to those assets, which comes under the
same category with the same rate of
depreciation.
 Example
 Tangible assets with same rate of depreciation will be
considered as a block.
 Intangible assets with same rate of depreciation will
be considered as block.
AssetsAssets Rate of DepreciationRate of Depreciation
Buildings 10
Plant & Machinery 25
Patents (Purchased
After 1-4-98)
25

5. METHODS OF CALCULATINGMETHODS OF CALCULATING
DEPRECIATIONDEPRECIATION
 Block of Assets.Block of Assets.
 Actual Cost Basis.Actual Cost Basis.
 Written Down Value BasisWritten Down Value Basis

6. RATES OF DEPRECIATION FORRATES OF DEPRECIATION FOR
TANGIBLE & INTANGIBLE ASSETSTANGIBLE & INTANGIBLE ASSETS
 Tangible Assets
 Buildings
 Building used for Residential Purpose – 5%
 Building – Water Supply Project – 100%
 Building other than above Two – 10%
 Furniture & Fittings – 10%
 Plant & Machinery – 15%
 Car after 01/04/1990 – 15%
 Aeroplanes – 40%
 Buses, lorries and taxies – 30%
 Computers (for Business point of view) – 60%
 Books – Annual publication / Give it to business or
profession – 100%
 Publication of books other than business – 60%
 Ships – 20%

7. TREATMENT FOR INTANGIBLETREATMENT FOR INTANGIBLE
ASSETSASSETS
In Tangible
Assets
If Expenditure Incurred
Before 1-4-98 (Purchases
Or Acquisiiton)
If Expenditure
Incurred After 1-4-
98 (Purchases Or
Acquisiiton)
Patents /
copy rights
and other
assets
1/4th
is allowed 25% Depreciation is
allowed
Technical
know-how
a. Usually 1/6th
is allowed.
b. If know-how is developed
in Indian Laboratory or
Institution – 1/3rd
is
allowed.
25% Depreciation is
allowed

8. POINTS TO BE CONSIDER TOPOINTS TO BE CONSIDER TO
CALCULATE DEPRECIATIONCALCULATE DEPRECIATION
 Depreciation = Value as on 31-03-2013 * Rate of
Depreciation.
 It is allowed on both tangible and intangible asset
provided intangible asset is acquired on or after 1st
April 1998.
 If any asset is used for less than 180 days in the
current previous year then 50% of the actual amount
of depreciation should be allowed as deduction.
 If an asset is used for 180 days or more full amount of
depreciation should be allowed.
 No depreciation is allowed if an asset is sold in the
current previous year.
Depreciation = Value as on 31-03-13 * Rate * 50%

9. POINTS TO BE CONSIDERED TO CLAIMPOINTS TO BE CONSIDERED TO CLAIM
ADDITIONAL DEPRECIATIONADDITIONAL DEPRECIATION
 The assessee must be engaged in the production orThe assessee must be engaged in the production or
manufacturing of any article belonging to priority or non-manufacturing of any article belonging to priority or non-
priority sector items.priority sector items.
 It is available of new P&M acquired & installed after 31It is available of new P&M acquired & installed after 31stst
March 2005.March 2005.
 It is not available for old P&M.It is not available for old P&M.
 It is not available for assets like building, furniture, ships,It is not available for assets like building, furniture, ships,
aircrafts, office appliances or road transport vehicles.aircrafts, office appliances or road transport vehicles.
 If any P&M is used in India or outside India before itsIf any P&M is used in India or outside India before its
installation, such P&M cannot claim additionalinstallation, such P&M cannot claim additional
depreciation.depreciation.
 Any P&M installed in office premisies, residentialAny P&M installed in office premisies, residential
accommodations and guest houses cannot claim additionalaccommodations and guest houses cannot claim additional
depreciation.depreciation.

10. POINTS TO BE CONSIDERED TO CLAIMPOINTS TO BE CONSIDERED TO CLAIM
ADDITIONAL DEPRECIATIONADDITIONAL DEPRECIATION
 The assessee must be engaged in the production orThe assessee must be engaged in the production or
manufacturing of any article belonging to priority or non-manufacturing of any article belonging to priority or non-
priority sector items.priority sector items.
 It is available of new P&M acquired & installed after 31It is available of new P&M acquired & installed after 31stst
March 2005.March 2005.
 It is not available for old P&M.It is not available for old P&M.
 It is not available for assets like building, furniture, ships,It is not available for assets like building, furniture, ships,
aircrafts, office appliances or road transport vehicles.aircrafts, office appliances or road transport vehicles.
 If any P&M is used in India or outside India before itsIf any P&M is used in India or outside India before its
installation, such P&M cannot claim additionalinstallation, such P&M cannot claim additional
depreciation.depreciation.
 Any P&M installed in office premisies, residentialAny P&M installed in office premisies, residential
accommodations and guest houses cannot claim additionalaccommodations and guest houses cannot claim additional
depreciation.depreciation.