Easy Calculation of Deprecation – Two General Cases
In today’s professional life many software makes the calculation easy on only filling up the figure of purchase and sales or incomes and expenses which makes the client happy in completing his work early and speedily. But hey….the students who studying professional courses… like Chartered Accountancy (CA), Cost and Works Accountants (CWA), Company Secretaries (CS) etc. under their article-ship become used to with ready-made software that made the work fast and ready on time….Don’t do it always. It is benefited for them for a short time span but they should think about it for the actual calculation as it may helpful in case of their exams or in absence of ready-made softwares or in situation of replying notices of income tax authority for cases when calculation of depreciation is necessary, etc.
Many people find it difficult to calculate Depreciation u/s. 32 of the Income Tax Act, 1961. Depreciation calculation makes sometime difficult to understand because we calculate in both way, i.e. in Accounting purpose and in Income Tax purpose. Treatment of depreciation under Income Tax Act, 1961 is simple compare to Accounting.
There are Two types of Depreciation namely – (a) Normal Depreciation and (b) Additional Depreciation (In case of power generating business). Normal Depreciation under section 32 of the Income Tax Act, 1961 is calculated on Written Down Value (WDV) of Block of Assets on the rates prescribed in the Act. Generally, Two Cases may arise:
Case (1) when neither WDV of Block of Assets nor Block of Assets is Zero
&
Case (2) when either WDV of Block of Assets or Block of Assets is Zero
Let see the calculation in easy form to understand instead of going through technical justification of above two Cases.
Case (1) when neither WDV of Block of Assets nor Block of Assets is Zero
In each of the above cases, Depreciation is calculated on WDV of Block of Assets, as we discussed earlier, calculating depreciation is easy especially on when assets purchased during the year is put to use for more than 180 days but confusion comes when such assets are put to use for less than 180 days. Let us see treatment of charging Depreciation in two situations comes under Case 1:
So you can see that there is NO CAPITAL GAIN / LOSS arises in Situation 1 & 2 of Case 1.
Case (2) when either WDV of Block of Assets or Block of Assets is Zero
In Case (2), whether or not the assets purchased during the year for less than 180 days Capital Gain/Loss u/s. 50 will arise in case where any assets sold during the year
and value of assets sold is more than the WDV of Block of Assets ( Not all assets are sold)
OR
when all the assets of the Block is sold BUT assets sold at value less than WDV of Block of Assets
In such case the Block of Assets ceases to exist (Block of Assets is Zero) or WDV of Block of Assets becomes Nil (Zero).
Here, there is NO DEPRECATION to be charged in Situation 1 & 2 of Case (2).
Dear friends, while doing calculation of depreciation for illustrations or for client, consider that there are only two situations arise for depreciation as we discussed above.
Dwarkesh K. Diwan 