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To give Incentive to Manufacturing,Income Tax Dept gives Additional depreciation of 20% for new plants and machinery installed during the year of purchase

This is in addition to normal depreciation

 

Section 32(1) (iia)

Additional Depreciation @ 20%

is available in first year of purchase

for

  1. An Industrial Undertaking 
  2. For Assessees engaged in Power Generation  Business Only
  3. For Assessees engaged in Power Generation and Distribution Business Only
  4. For Assesses engaged in Power Transmission Business (New Amendment)

On

New plant and machinery installed ( after 31.3.05)


EARLIER NOW
Additional Depreciation @ 20%  is available in  first year of purchase  for
  1. An Industrial Undertaking 
  2. For Assesses engaged in Power Generation Business
  3. For Assesses engaged in Power Generation and Distribution Business
(Not available to Assesses only in Power Transmission Business)   
Additional Depreciation @ 20%  is available in  first year of purchase  for
  1. An Industrial Undertaking 
  2. For Assesses engaged in Power Generation Business
  3. For Assesses engaged in Power Generation and Distribution Business
  4. For Assesses engaged in Power Transmission Business
(Now available to Assesses only in Power Transmission Business)    

In Case, Asset used for less than 180 days,

then half depreciation i,e,
1/2 of 20% i.e.10% Depreciation available

(Balance 50% of Additional Depreciation can be claimed in next year)

(New third proviso to section 32(1)(ii) )

 

 

NON Applicability

1 . Additional Depreciation is only on Plant and Machinery,  not other assets like Furniture and Buildings

2 . On Following Plant and Machinery(P&M) also, no Additional Deprecation

  • Ships and Aircrafts
  • Second hand P& M
  • P& M used in Office/Home/Guest house
  • Office Appliances
  • Road Transport Vehicles(Car etc)
  • 100% Depreciable Assets (like Pollution Control Equipments)

3. Additional Depreciation is only for factories or power generation units,  not for dealers or service providers

 For Machinery,General Rate of Depreciation is 15%.In addition,20% Depreciation will be available in first year for Industrial Undertaking and Power Generation Distribution business.
Hence ,total 15%+20%= 35% Depreciation will be available in first year
 
However,if asset used for less than 180 days,then 1/2 of 35% (15%Normal Dep +20% Additional Dep) will be available

Balance half of both Normal and Additional Deprecation will now be available in next year

 FORMAT

Name of Asset Block 1 Machine
Opening Value xx
Add  
Purchases 180 days or more xx
Purchase Less than 180 days xx
Less  
Sales During Year xx
Cl Value before Dep xx
Less  
Depreciation  xx
Additional Dep xx
Closing WDV(after Dep) xx

 

PGBP Computation

Indirect Method Amount in Crores
Profit xx
Add  
Expense disallowed  

Dep Charged in Profit and Loss

(as per Companies Act)

xx
   
Less  
Expense Allowed  
Dep as per Income Tax xx
Additional Depreciation @ 20% xx
PGBP Income xx

 

 

Example:
XYZ Ltd., a manufacturing concern, furnishes the following particulars:
  1) Opening WDV of plant and machinery as on 1.4.2015                                    30,00,000
(2) New plant and machinery purchased and put to use on 08.06.2015                  20,00,000
(3) New plant and machinery acquired and put to use on 15.12.2015                      8,00,000
(4) Computer acquired and installed in the office premises on 2.1.2016                   3,00,000

Compute the amount of depreciation and additional depreciation as per the Income-tax Act, 1961 for the A.Y. 2016-17

-a-

Important Points

There are 2 blocks

Plant and Machinery :- Dep Rate 15%

Computer :- Dep Rate 60%

 

However,Additional depreciation is available only on Plant and Machinery

Full 20% Additional Dep on P&M acquired on 08.06.2015 and 

10% Dep on P&M acquired on 15.12.2015

 

It is  not available on computers as it is used in office.

Name of Asset Block 1 Machine Block 2 Computer
Dep Rate 15% 60%
     
Opening Value 3000000 0
Add    
Purchases 180 days or more 2000000  
Purchase Less than 180 days 800000 300000
Less    
Sales During Year 0 0
Cl Value before Dep 5800000 300000
     
Depreciation 810000 90000
 

(3000000+2000000)*15%

+800000*15%*1/2

300000*60%*1/2
Additional Dep 480000 0
  (2000000*20%)+(800000*10%) (Used in Office)
     
Closing WDV (after Dep) 4510000 210000 
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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