Sec.
32 provides for depreciation on -
Tangible
assets
Building, Machinery, Plant and Furniture.
Intangible
assets
Know how, Copyright, Trade Mark, Patent, License, Franchise, or any other business
orcommercial right of the similar nature acquired on or after 1/4/1998.
However, it does not include goodwill
CONDITIONS FOR CLAIMING DEPRECIATION
Depreciation is allowed provided the following conditions are satisfied:
Condition 1:
Asset must be owned by the
assessee.
Condition 2:
Asset must be used for the purpose of business orprofession during
the previous year.
Beneficial owner:
Assessee need not be a
registered owner, even a
beneficial owner can claim
depreciation.
Passive use -vs.- Active use:
Use includes active use as well as passive use. Active use means
actual use of the property for the purpose of business or
profession. Whereaspassive use includes “ready to use”. It means,
if a property was not actually used for business or profession but
was ready to use in the previous year, in such case, assessee can
claim depreciation on such assets.
Co-owner:
In case of joint ownership,
depreciation is allowed on
proportionate basis.
DEPRECIATION [SEC. 32]
Property acquired on hire
purchase:
Incase of hire purchase, the
buyer
can
claim
depreciation even though
he does not get legal title of
the asset till he pays the last
instalment.
Partly used for business or profession:
As per sec. 38, if an asset is partly used for business or
profession and partly used for personal purpose, then
proportionate depreciation (as determined by the Assessing
Officer) shallbe allowed.
Capital expenditure on a
property by the lessee:
Where an assessee being a
lessee of a property incurs any
capital expenditure by way of
improvement, extension,
super construction, etc. on a
building being used for his
business or profession, he is
entitled to depreciation in
respect of such capital
expenditure.
House property let out to tenant for smooth running of the
business:
If an assessee lets out a property to his employee and where such
letting-out supports smooth flow of his business, then rent received
from employee shall be chargeable under the head “Profits & gains
of business or profession” and such property shall be eligible for
depreciation u/s 32. Similarly, where an assessee makes available his
property to any Government agency for locating branch of a
nationalized bank, police station, post office, tax office, railway staff
quarters, etc. for the purpose of running the business of assessee
more efficiently, then such letting out shall be deemed to be
incidental to business and depreciation on such building shall be
allowed u/s 32.
Sec. 53A of Transfer of Property Act:
Possessor of an immovable property u/s 53A of Transfer of Property Act can claim depreciation even
though he is not the registered owner of the property.
METHOD OF COMPUTING DEPRECIATION (OTHER THAN POWER UNITS)
The method of computing depreciation as per Income Tax Act is entirely different from accountancy
method.
For Income tax purpose, assets are categorized into Block of Assets.
BLOCK OF ASSETS [SEC. 2(11)]
Block of assets means a group of assets of same nature, in respect of which same rate of
depreciation is
charged. In other words, to fall in the same block, the following two conditions are to be satisfied:
Assets must be of same nature; Tangible assets being building, machinery, plant or furniture, and
Intangible assets, being know-how, patents, copy-rights, trade marks, licenses, franchises or any
other
business or commercial rights of similar nature acquired on or after 1-4-1998 (it does not include
goodwill);
Rate of depreciation on such asset must be same.
METHOD OF DEPRECIATION
Depreciation shall be allowed on written down value method at the rates prescribed
