Depreciation rate is mentioned in the Income Tax Act for investments made in furniture, plant, and machinery by an assesses during the FY. The concept of depreciation is mainly used for writing off the cost of an asset over its useful life. It is a compulsory deduction either in the Straight-Line method or Written Down Value (WDV) method. WDV method is widely used for calculating depreciation. It is a widely used concept except for undertaking engaged in generation or generation and distribution of power. The act also permits a deduction for additional depreciation in the year of purchase in some specific circumstances.
Plant for Income Tax including ships, books, vehicles, scientific apparatus, and surgical equipment used for the purpose of business or profession. Machinery including all kinds of mechanical items and contrivances.
Machinery need not be a self-contained unit and could be a part of bigger machinery or even be one that should be used in conjunction with one or more machines. This article will look at the depreciation rate for furniture, plant, and machinery under the Income Tax Act.
Block Of Assets- Concept
- Block Of Assets- Concept
- Conditions For Claiming Depreciation
- Depreciation Rate: Furniture
- Depreciation Rate: Plant And Machinery
- Depreciation Rate: 15%
- Depreciation Rate: 30%
- Depreciation Rate: 40%
- Depreciation Rate: 60% (40% w.e.f. 1/4/2017)
- Depreciation Rate: 80% (40% w.e.f. 1/4/2017)
- Depreciation rate: 100% (40% w.e.f 1/4/2017)
The depreciation rate is calculated on the WDV of a Block of assets. Block of assets is a group of assets that falls within a class of assets consisting of:
- Tangible assets, being furniture, building, plant, or machinery,
- Intangible assets, being copyrights, patents, trademarks, licenses, franchises, or any other business or commercial right of a similar nature.
The block of assets is categorized further depending on the similar use, life of the asset, and nature of the asset.
Conditions For Claiming Depreciation
You may avail deduction for depreciation, only when it satisfies the following conditions.
- The assets should be owned, wholly partly, by the assesses.
- The assets should be in use for the business or profession of the taxpayer. In case the assets are not used exclusively for the purpose of business, but for other various purposes as well, depreciation allowable would be proportionate to the use of business purpose. The Income Tax Officer also owns the right to know the proportionate part of the depreciation under Section 38 of the Act.
- Co-owners may claim depreciation to the extent of the value of the assets that are owned by each co-owner.
- You are not allowed to claim depreciation on the cost of land.
- Depreciation is compulsory from A.Y. 2002-03 and shall be allowed or deemed to have been permitted as a deduction disregarding a claim made by a taxpayer in the profit and loss account.
Written Down Value(WDV)
According to Section 32(1) of the IT Act, depreciation must be calculated at the prescribed percentage on the WDV of the asset, which in turn is computed with reference to understanding the meaning of the term ‘WDV’ and ‘Actual Cost’.
According to the Income Tax Act, WDV means:
- Where the asset is purchased in the previous year, the real cost of the asset shall be treated as WDV.
- Where the asset is purchased in an earlier year, the WDV shall be equal to the original cost incurred less depreciation actually allowed under the Act.
Depreciation Rate: Furniture
Furniture can be perceived as an article of convenience or decoration that is usually used to furnish a house, an apartment, a business place, or accommodation. According to the Income Tax Act, the word “furniture” also includes fittings. Wiring, switches, light fittings, sockets, fans, and so on are included in the category of electrical fittings. The rate of depreciation for furniture and fitting according to the Income Tax Act is 10%.
Depreciation Rate: Plant And Machinery
Plant and machinery include a wide-range of movable assets that are owned by a company and include the following listed below:
- Telephone systems
- Mains, service lines, and switch gears
- Safe deposit lockers
- Air conditioners and electric fans
- Electrical transformers
- Data-processing machines, printers, and computers
- Scaffolding and ladders
- Tools and instruments
- Cylinders for storing gas
- Books containing technical know-how
- Bins and shelves in a factory
The depreciation rate for plant and machinery falls under 7 different black rates as follows:
Depreciation Rate: 15%
Motor cars that are not used in a business of running them on hire and any kind of plant and machinery not covered under any of the other blocks are chargeable at a 15% depreciation rate.
Depreciation Rate: 30%
30% depreciation rate is applicable for the kinds of plants and machinery listed below:
- Motor buses, motor taxis, and motor lorries that are used in a business of running them on hire.
- Moulds that are used in plastic goods and rubber factories.
Plant and machinery that are used in a semiconductor industry covering all integrated circuits that range from small scale integration to large scale integration/very large scale integration as also discrete semiconductor devices like transistors, diodes, thyristors, and so on other than those entities to 80% depreciation rate.
Depreciation Rate: 40%
40% rate of depreciation is applicable to the kinds of plant and machinery listed below:
- Specified life saving medical equipment.
- Airplanes and aero-engines.
- Commercial vehicles that are owned by the assessee on or after 1.10.1998 but before 1.4.1999 and are put to use for any period before 1.4.1999 for business or professional purposes.
- Containers made of plastic or glass used as refills.
- New commercial vehicles that are owned on or after 1.4.2001 but before 1.4.2002 for business or professional purposes.
- New commercial vehicles that are owned on after 1.1.2009 but before 1.10.2009 and is put to use before 1.10.2009 and are put to use before 1.10.2009 for business and professional purpose.
- Plant and machinery that are used in weaving, processing, and garment sector of the textile industry, that are bought on or after 1.4.2001 but before 1.4.2004 and is used before 1.4.2004.
Depreciation Rate: 60% (40% w.e.f. 1/4/2017)
60% rate of depreciation is applicable for the following kinds of plant and machinery. But the same has been reduced to 40% with effect from 1.4.2017.
- Computer software and computers.
- Books that are owned by the assessee for pursuing a profession.
- Gas cylinders that include valves and regulators, direct fire glass melting furnaces used in manufacturing glass, plant used in field operations distribution and plant used in field operations, but not in including kerbside pumps including underground tanks and fittings used in field operations, but does not include kerbside pumps including underground tanks and fittings used in field operations by mineral oil concerns.
Depreciation Rate: 80% (40% w.e.f. 1/4/2017)
80% rate of depreciation is applicable for the kinds of plant and machinery listed below. But the same has been reduced to 40% w.e.f. 1.4.2017.
- Any specially designed devices which are operated on windmills along with windmills already installed on or after 1/4/2014.
- Devices which are operated through wind energy such as “electric generators and pumps” which were installed on or after 1/4/2014.
- Rollers used in different industries and mills such as “Flour mills, Iron and Steel industry, and Sugar mills” along with rolling devices which are energy savings and renewable resources.
Depreciation rate: 100% (40% w.e.f 1/4/2017)
The following types of plant and machinery have a 100% depreciation rate. Although, from 1/4/2017, the depreciation rate of all these has been decreased to 40%.
- The wooden parts which are used in the artificial silk manufacturing companies.
- Bulbs of studio lights along with cinematography films.
- Wooden match frames in the match factories.
- The annual publication of books owned by assess who are continuing their profession.
- Books are owned by businesses that are running a few leading libraries.
- Condensers, reservoirs, and salt pans which made via sandy, clayey, or earthy material.
- Safety lamps are used in mines and quarries along with winding ropes, tubs, haulage ropes, and stowing pipes.
- Any plant or machinery which has been installed or acquired after 1/9/2002 in all water supply treatment or projects. These plant and machinery have been later put in use as an infrastructure facility.
- Water pollution control equipment, air pollution control equipment, solid waste recycling, solid waste control equipment, and resource recovery systems.
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