DEPRECIATION U/S 32

Conditions to be fulfilled:
• Available on Tangible Assets & Intangible
Assets.
• Assets should be owned by the Assessee.
• Assets should have been used by the
assessee for the purpose of his business
or profession.
• Such use should be during the relevant
P.Y.
 Depreciation Depends on What?

• Block of Assets
• Prescribed Rate of Depreciation
• Actual Cost
• Written Down Value
 Block of Assets [sec 2(22)]
A Group of Assets falling within a Class of Assets
(e.g. Plant, Machinery, Buildings, Furniture, Know-
how, Trade Mark, Patent, etc.) with the same rate
of depreciation.

Two Criteria:
* Same Class
* Same Rate
 Rates of Depreciation
Residential Buildings 5%
Office, Factory, Godown 10%
Temporary Wooden Structure 100%
Furniture 10%
Plant & Machinery 15%
Computers 60%
Pollution Control Equipments 100%
Any Intangible Assets 25%
 Computation of Depreciation
A. Depreciated Value of Block of 100
Assets on 1st April, 2009
B. Actual Cost of Asset (s) belonging 20
to the Block acquired in 2009-10
C. A + B 120
D. Money Received/Receivable (including 50
Scrap value) for asset (s) sold, discarded, etc.
in 2009-10
E. Written Down Value on 31-03-2010 (D – 70
E)
F. Depreciation = E * Rate
 Zero WDV of a Block of Assets
A. Depreciated Value on 01-04-09 100
B. Actual cost of new asset acquired 20
in 2009-10
C. A + B 120
D. Amount Received for Sale of an 120
Existing Asset in 2009-10
(Actual Sale proceeds Rs.150 but
deduction is restricted to C supra)

E. WDV on 31-03-2010 Nil

F. Depreciation Nil

Excess of Sale Proceeds over the Amount under C Rs. 30 (i.e.

150 – 120) is Taxable as STCG
 WDV of an Empty Block of Assets
A. Depreciated Value on 01-04-09 100
B. Actual cost of new asset acquired 20
in 2009-10
C. A + B 120
D. Amount Received from Sale of All 90
Assets of the Block in 2009-10

E. WDV on 31-03-2010 Nil

F. Depreciation Nil

Excess of the Amount under C over Sale Proceeds Rs. 30

(i.e. 120 - 90) is STCL
Days of Use in the Year of Acquisition &
Depreciation Rate
Days of Use in the Year of Acquisition

< 180 days >= 180 days

50% of Normal
Rate Normal Rate
 Additional Depreciation
• Who can claim?
Any person engaged in manufacture or
production of any article or thing.
• On What Asset?
Only new Plant & Machinery subject to Certain
conditions / exceptions.
• When?
Only in the year of acquisition when it is put to
use.
• At What Rate?
20% of the Actual Cost of Plant & Machinery
(10% if period of use is less than 180 days in the
year of acquisition.)
Assets NOT ELIGIBLE for Additional
Depreciation
• Building , Furniture
• Old / Second-hand Plant & Machinery
• Plant & Machinery of Power Generating
Units.
• Ships, Aircrafts, Road Transport Vehicles.
• Equipments installed in Office Premises or
Residential Houses including Guest
Houses.
 Scientific Research Expenditure
[Sec35]

Research Carried on by whom?

• By the Assessee
• By an Outsider
 Research Carried on by the
Assessee
• Research must be related to the assessee’s
business.
• Revenue expenditure fully allowed as
deduction.
• Revenue expenditure incurred within a period
of 3 years immediately preceding the
commencement of business is deductible in the
P.Y. in which the business is commenced to the
extent it is certified by the appropriate authority.
 Research Carried on by the
Outsiders
• Research may or may not be related to the
assessee’s business.

• Weighted deduction at the rate of 125% of

actual contribution made by the assessee is
deductible if payment is made to certain approved
bodies.
• Those bodies should approved by the appropriate
authority and have the objective of carrying on
research.
 What are those Bodies?
• Approved Scientific Research Association
• Approved university, college or institution
• Approved university, college or institution for
carrying on research on social science or
statistics.
• Approved scientific research company with the
objective of undertaking research on behalf of the
small companies unable to invest lump-sum
amount in research.
• National Laboratory, IIT, etc. for undertaking
scientific research programme.
Capital Expenditure for Scientific
Research Purpose
• Research must be related to the business of the
assessee.
• 100% of such capital expenditure allowed as deduction.
• Cost of land is not considered.
• Capital expenditure incurred within a period of 3 years
immediately preceding the commencement of business
is deductible in the P.Y. in which the business is
commenced to the extent it is certified by the appropriate
authority.
• No Depreciation is allowed on such expenditure.
 Amortization of Preliminary Expenditure
[Sec 35D]
• Who are entitled?
1. An Indian Company
2. Any Non-corporate Assessee resident in India

• Qualifying Preliminary Expenditure:

It should be incurred
(a) before commencement of business, or
(b) after commencement of business in
connection with extension of existing undertaking
or setting up of a new unit.
 Limit / Ceiling of Qualifying Preliminary
Expenditure
• In case of a Non-corporate Assessee:
5 % of the Cost of Project.
• In case of an Indian Company:
5% of the Cost of Project or 5% of Capital
Employed whichever is higher.
Cost of Project means the aggregate of actual cost of fixed
assets.
Capital Employed means the aggregate of issued share
capital, debenture and other long term loans.
Both are as per books of accounts on the last day of the
previous year in which the business is commenced or the
extension is completed or new unit starts operation.
 Amount & Period of Deduction

• Amount of deduction:
1/5th of the qualifying amount every year

• Period of deduction:
5 successive years starting with the
previous year in which the business is
commenced or the extension is completed
or new unit starts operation.
 Interest on Borrowed Capital
[Sec 36(1)(iii)]
 Conditions for allowing deduction:
(a) Interest is paid or payable (except the cases u/s 43B) on
capital.
(b) Capital should be borrowed for the purpose of business
or profession.
 Challapalli Sugars Ltd. Vs. CIT
In case of a new concern, interest incurred before the
commencement of production can be capitalized.
 Interest on loan taken for acquisition of an asset for the
period from the date of taking loan till the asset is put to use
cannot be allowed as deduction u/s 36(1)(iii). However, it
can be capitalized.
 Bad Debts [Sec 36(1)(vii)]
Conditions to be fulfilled:
• Taking the debt into account while computing
income of the assessee of the relevant previous
year or earlier previous year.

• The debt representing money lent in the ordinary

course of banking or money lending business.

• It has been written off as irrecoverable in the

accounts of the previous year in which deduction is
claimed.
 Transfer to Special Reserve
[Sec 36(1)(viii)
Who can claim deduction?
• A public FI (ICICI, IDBI,IFCI, LICI, UTI, IDFC Ltd.),
banking company, co-operative bank, etc.
• A housing finance company
• Any other financial corporation including public co.
Eligible Business:
• Providing long term finance (repayable in minimum
5 years) in India for industrial, agricultural or
infrastructure development.
• Providing long term finance for construction /
purchase of residential houses in India.
 Amount of Deduction U/S 36(1)(viii)

Least of the following:

• Amount transferred to Special Reserve
A/C during the previous year.
• 20% of the profits derived from the eligible
business activities (computed U/S 28)
• 200% of (Paid up Share Capital + General
Reserve as on the last day of the previous
year) – balance of Special Reserve A/C as
on the first day of the previous year.
 Expenditures exceeding Rs.20000
• If an expenditure exceeds Rs.20000 and the payment
thereof is not made by A/c Payee Cheque or DD, 100% of
that expenditure is disallowed.
Exceptions [Rule 6DD]
• Payment to banking and other credit institutions.
• Payment to Government of any tax, duty, railway freight.
• Payment through LC, TT, Credit / Debit Card, etc.
• Payment to a cultivator, producer in respect of purchase of
agricultural / forest / dairy/ horticultural product.
• Payment to a person residing in a village not served by any
bank.
• Payment of gratuity, retrenchment compensation not
exceeding Rs.50000/-.
 Unpaid Statutory Liability [Sec 43B]
Following expenditure deductible on Payment Basis, i.e.,
deductible in the year in which payment is made:
• Any tax, duty, cess or fee;
• Employer’s contribution to employees’ Provident Fund,
Superannuation Fund or any other welfare fund;
• Bonus or commission to employees for services rendered;
• Interest on any loan from a public financial institution (ICICI,
IFCI, LICI, UTI) or a scheduled bank including co-operative
bank or a state financial corporation;
• Any sum payable to an employee in lieu of leave at his
credit.
However, deduction is allowed If payment is made after the
end of the year but on / before due date of submission of
Return of Income.
 Deemed Profits [Sec 41]
• Recovery of past loss / expenditure
• Sale of asset used for scientific research
• Recovery of bad debt
• Amount withdrawn from Special Reserve
created u/s 36(1)(viii).
• Recovery after discontinuance of business /
profession