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Depreciation: Section 32 Income Tax Act, 1961

Section 32 of the Income Tax Act, 1961 allows for depreciation to be deducted from total income. Depreciation is calculated on the written down value method for blocks of assets. To claim depreciation, the asset must be owned by the assessee, used for business purposes, fall under a specified category of tangible or intangible assets, and depreciation is calculated at prescribed rates for each asset class on the closing written down value.

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178 views11 pages

Depreciation: Section 32 Income Tax Act, 1961

Section 32 of the Income Tax Act, 1961 allows for depreciation to be deducted from total income. Depreciation is calculated on the written down value method for blocks of assets. To claim depreciation, the asset must be owned by the assessee, used for business purposes, fall under a specified category of tangible or intangible assets, and depreciation is calculated at prescribed rates for each asset class on the closing written down value.

Uploaded by

varunh9
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Depreciation

Section 32
Income Tax Act, 1961

RENJU RAJU,
PGDM, SEM # 3,
ROLL NO 31
Definition
Depreciation as per the Income Tax Act, 1961, is
allowed on the written down value method on the
basis of block of assets.

Section 32 of the Income Tax Act provides for


deduction on account of depreciation from the total
income of assessee, and the two basic requirements to
be fulfilled for claiming depreciation are ownership of
asset and 'use of asset for the purpose of business'
Depreciation is allowed in respect of:
 Assets should be a specified asset
 Assets should be owned, wholly or partly by

assessee
 Assets used for the purpose of business

during the previous year


 Computation on the block of asset
 On the written down value of the assets
 At the prescribed rate for the given category

of assets
1 ) Assets should be a specified asset

 Depreciation can be claimed only in respect


of: specified tangible asset viz. buildings,
machinery, plant or furniture.
 Also certain intangible assets like technical

knowhow, patents, copy rights, trade marks,


licenses or any other business or commercial
rights of similar nature.
2) Assets should be owned, wholly or partly by assessee

 The assets must be owned by the assessee


i.e. he must have the right to enjoy the asset
as his own. The asset may be wholly or partly
owned by the assessee.
 A rented property cannot be claimed for

depreciation. However hire purchase


agreement can claim depreciation on the
initial value of asset acquired under the hire
purchase right from the day one.
3) Asset must be used for business during the previous
year

 The asset must have been used for the


purpose of assessor’s business or profession
during the previous year.

 Use includes both active and passive use. If


the asset has been partly used for business
then depreciation is allowed only on the part
used for business.
4) Computation on the block of asset

There are 4 classes of assets:

 Buildings
 Plant and machinery
 Trademarks
 Patents
5) Written down value of asset

Computation of written down value:

 Opening written down value


 Add: Assets added to the block
 Less: Assets removed from the block
 Closing written down value
6) At the prescribed rate for the given category of assets

 Depreciation rates in respect of different


categories of assets such as buildings,
furniture, machinery, patents etc are
prescribed as per income tax rules.

 These rates are applied to the closing written


down value of the block of assets.  
Special cases:

1. 50% depreciation for assets used for less


than 180 days
2. No depreciation when WDV of a block
becomes negative
3. No depreciation when block becomes empty
4. Depreciation on cost or power industry
5. No depreciation on scientific research assets
6. Additional depreciation can be claimed on
new plant and machinery
Thank you

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