An additional depreciation of 20% of the total actual cost has been allowed according to the Income Tax Act. This is to be done for in case of any brand new plant or machinery, with the exclusion of aircrafts and ships, obtained and installed after the date of 31st March, 2005. This is to be done by a reviewer who is involved in the business of production and manufacture of any object, so that proper assessment has been conducted.
From the assessment years 2013 to 2014, this rule has been applicable on the reviewer who is involved in the business of generating or both generating and distributing the power, in such case, the depreciation is given on the WDV method according to the Appendix 1. From the assessment years 2017 to 2018, this rule has been made applicable for the reviewer who is involved in the business related to the propagation of power. In this case, the asset which gets used for less than one hundred and eighty days, depreciation of 50% gets added, that is, half of 20% (meaning 10%) becomes available. A balance of 50% of the Additional Depreciation can be asked for in the coming year.
The plants or machinery which fall under any of the following categories do not require to have additional depreciation –
- Items used by a person within India before their installation
- Items used by a person outside of India before their installation
- Items which are installed within the premises of any offices
- Items which are installed within any residential accommodation
- Items which are installed inside any guest house
- Items related to the appliances used in office
- Items related to the vehicles used for transportation on the road
- The total of the actual cost which has been allowed as a depreciation in the income generated from computing for the purposes of taxation in any of them in the previous year.
The Provision included vide Finance Act of 2015, taking effect from the 1 April 2016, asks for an improved depreciation in the backward areas. A reviewer puts on an undertaking or an enterprise for the production of manufacture of any object or article on or after the aforementioned date, that is April 1, 2015 in any of the backward areas and has to be notified by Central Government on the behalf of the following –
- In the state of Bihar
- In the state of West Bengal
- In the state of Andhra Pradesh
- In the state of Telangana
Such reviewer obtains and makes installation of the new machinery, of course, excluding the ships and the aircrafts. In this case, additional depreciation which is available for the undertaking or the enterprise for the time frame April 1, 2015 to March 31, 2020 is at 35% instead of the 20%.
Areas of Non-Applicability
The additional depreciation are not to be added in the following categories of items.
- Exclusion of assets like furniture
- Exclusion of assets like building materials
- Materials for ships
- Materials for aircrafts
- Second hand plant and machinery
- Plant and machinery used in the offices
- Plant and machinery used in the house
- Plant and machinery used in the guest house
- Appliances used in the office
- The vehicles used for transportation on the road, such as, car etc.
- The assets which are 100% depreciable, such as, the equipment used for pollution control.
It should be noted that the depreciation is added only to the factories or units of power generation. It is not applied on the dealers of the providers of service.
The general percentage for machinery is determined 15%. In addition to that, 20% more depreciations will be in the first year for the industrial undertaking and the generation of power distribution within a business.
Therefore, total depreciation is (15+20) %=35% will be available for the first year
But if the asset has been used for less than 180 days, then half of the 35% will be available. This means that, 15% Normal Depreciation along with 20% additional depreciation. Half of the balance of both the normal and the additional depreciation can be obtained in the following year.
A manufacturing concern, such as the ABC Limited, provides the given particulars:
- From the first of April, 2017, the opening WDV, Written Down Value on the machinery and plant has been determined Rs 30,00,000
- The new machinery and plants put into use from the 8th of June, 2017 is Rs 20,00,000
- The new machinery and plants put into use from the 15th of December, 2017 is Rs 800,000
- The computers which are obtained and installed within the premise of the offices since 2nd January, 2018 is Rs 3,00,000
The net quantity of depreciation falling under the Income Tax Act for the assessment year of 2018 to 2019 is put into the computer in the following two blocks. These are:
- The rate of depreciation is 15% for the plant and machinery
- The rate of depreciation of the computers is 60%
But it is to be noted that the additional depreciation will be available on the plant and machinery. From 8th of June, 2017, there will be 20% of full additional depreciation on the plant and machinery and 10% for those which are obtained on 15th of December 2017. However, this is not available for the computers since they are being used inside the premises of the office.
The following list gives details about this.
|Name of the Asset||Block 1 Machine||Block 2 Computer|
|Opening Value (Rs.)||3000000||0|
Purchases 180 days or more
Purchase for Less than 180 days
Sales During the Year
|Closing Value before the Depreciation||5800000||300000|
|(2000000*20%)+(800000*10%)||(Used in Office)|
|Closing Written Down Value (after the Depreciation)||4510000||210000|
These are important details related to the Additional Depreciation. For more details visit Company vakil