DEPRECIATION RATES – INCOME TAX FOR FY 2020-21 / AY 2021-22
Table of Contents
Depreciation Rates as per Income Tax for FY 2020-21 / AY 2021-22
Depreciation is allowed as deduction under section 32 of Income Tax Act, 1961. In computation of taxable income, the depreciation rate as per income tax act will be allowed as deduction while depreciation as per book profit is added back. Depreciation rate chart for FY 2020-21 / AY 2021-22 as produced in the table below. depreciation rates – income tax
What is Depreciation Rates as per Income Tax
Depreciation as per accounting terms is reduction of the cost of fixed asset in a systematic manner in order to depict the correct value of Asset-Liability position. This help to comply with matching principles of accounting norms.
There is twin impact of depreciation (1) charges on profit & loss account (2) reduction in the cost of fixed assets.
Types of Depreciation method
The depreciation is charged either as straight-line method or written down value method.
- Straight line method (‘SLM’) is a simple method of charging same amount every year till the useful life of the asset.
- Written down value (‘WDV’) is constant rate of depreciation is charged on the net book value of assets. Quantum of depreciation is higher in initial years.
Depreciation as per Income Tax Act & Companies Act
- Companies Act: In case of company, depreciation rate should be charged as per rate prescribed in Companies Act
- Income Tax Act: While computing income tax payable, depreciation rate should be charged as per rate prescribed in Income Tax Act. This is applicable for all types of taxpayers
Depreciation on types of assets
As the Income tax act, taxpayer can claim depreciation on the follow assets:
- Tangible Assets – Building, Machinery, Plant, Furniture
- Intangible Assets – Know-how, Patents, Copyrights, Trademarks, Licences, Franchises or any other commercial rights
Depreciation related provision under Income Tax Act
In order to understand the method of computation of depreciation, one should be aware of the following provisions:-
- Section 2(11): Explain term ‘Block of assets’
- Section 32: Deals with method of depreciation
- Section 32(1)(iia): Additional depreciation in certain cases
- Section 43(1): Defines Actual Cost of an asset
- Section 43(6): Deals with ‘Written Down Value – WDV’
- Section 50: Computation of Deemed Capital Gains on transfer of depreciable assets
- Rule 5 of Income Tax Rules, 1962 read with Appendix-1
Block of Assets
The block of assets mean a group of assets within a class of assets in respect of which the same percentage of depreciation is prescribed.
The ten block of assets are as follows:
Depreciation rates – Income Tax
| Block | Nature of Assets | Rate |
|---|---|---|
| Block-1 | Building – Residential buildings other than hotels and boarding houses | 5% |
| Block-2 | Building – Office, factory, godown or building which not mainly used for residential purpose (cover hotels & boarding houses, & not covered in block1 & 3 | 10% |
| Block-3 | Building – Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities under clause (i) of sub-section (4) of section 80-IAPurely temporary erections such as wooden structures | 40% |
| Block-4 | Furniture – Furniture and fittings including electrical fittings | 10% |
| Block-5 | Plant and machinery – Any plant or machinery (not covered by Block 6, 7, 8, 9, 10, 11, 12) and motor car (other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990) | 15% |
| Block-6 | Plant and machinery – Ocean – going ships, vessels ordinarily operating on inland waters including speed boats | 20% |
| Block-7 | Plant and machinery – Buses, lorries and taxies used in the business of running them on hireMotor cars excluding those used in a business of running them on hire purchased on or after 23 August 2019 but before the 1 April 2020 and is put to use before 1 April 2020Moulds used in plastic and rubber goods factoriesPlant and machinery used in semiconductor industry covering all integrated circuits (ICs) (not including hybrid integrated circuits) ranging from small scale integration (SSI) to large scale integration / very large scale integration (LSI/VLSI) as also discrete semiconductor devices like diodes, triacs, thyristors, transistors, etc | 30% |
| Block-8 | Plant and machinery – The block of assets includes the following: Aeroplanes, Aero EnginesLife Saving medical equipment (which satisfy rule 5(2)D.C Defibrillators for pacemakers and internal useColour DopplerHaemodialysisCobalt therapy unitVascular Angiography System including Digital subtraction AngiographyHeart lung machineSpect Gamma CameraMagnetic Resonance Imaging SystemVentilator used with anaesthesia apparatusVentilator except those used with anaesthesiaSurgical laserGamma knifeFibreoptic endoscopes including audit resectoscope/paediatric resectoscope, arthoscope, peritoneoscopes, fibreoptic flexible nasal pharyngo, microaryngoscope, video laryngo, fiberoptic flexible laryngo bronchoscope.Bronchoscope, video oescophago gastroscope, video oescopghago bronchoscope, fibreoptic flexible oesophago gastroscopeComputers including computer softwareEnergy saving devices; renewal energy devices, rollers in flour mills,Air Pollution control equipmentElectrostatic precipitation systemsFelt-filter systemsDust collector systemsScrubber-counter current/venturi/packed bed/cyclonic scrubbersAsh handling system and evacuation system Water pollution control equipments, Mechanical screen systemsAerated detritus chambers (including air compressor)Mechanically skimmed oil and grease removal systemsChemical feed systems and flash mixing equipmentMechanical flocculators and mechanical reactorsDiffused air/mechanically aerated activated sludge systemsAerated lagoon systemsBiofiltersMethane-recovery anaerobic digester systemsAir floatation systemsAir/steam stripping systemsUrea Hydrolysis systemsMarine outfall systemsCentrifuge for dewatering sludgeRotating biological contractor or bio-discIon exchange resin columnActivated carbon columnSolidwaste control equipment being -caustic/ lime/ chrome/ mineral/ cryolite recovery systems. Solidwaste recycling and resource recovery systemsContainers made of glass or plastic used as re-fills | 40% |
| Block-9 | Plant and machinery – Motor Taxis, Moto Lorries, Motor Buses (used in a business of running them on hire) purchased on or after 23 August 2019 but before the 1 April 2020 and is put to use before 1 April 2020 | 45% |
| Block-10 | Intangible assets (acquired after 31st March, 1998) Know-how, Trademarks, Patents, Copyrights, Licences, Franchises and any other commercial rights (including business rights) of similar nature | 25% |
Notes to Depreciation Rate Chart
1. “Buildings” include roads, bridges, culverts, wells and tubewells.
2. A building shall be deemed to be a building used mainly for residential purposes, if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-third per cent of its total built-up floor area and shall include any such building in the factory premises.
3. In respect of any structure or work by way of renovation or improvement in or in relation to a building referred to in Explanation 1 of clause (ii) of sub-section (1) of section 32, the percentage to be applied will be the percentage specified against sub-item (1) or (2) of item I as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected. Where the structure is constructed or the work is done by way of extension of any such building, the percentage to be applied would be such percentage as would be appropriate, as if the structure or work constituted a separate building.
4. Water treatment system includes system for desalination, demineralisation and purification of water.
5. “Electrical fittings” include electrical wiring, switches, sockets, other fittings and fans, etc.
5A. Rate of depreciation shall be 40% if conditions of Rule 5(2) are satisfied.
6. “Commercial vehicle” means “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi-cab”, “motor-cab”, “tractor” and “road-roller”. The expressions “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle”, “medium passenger motor vehicle”, “maxi-cab”, “motor-cab”, “tractor” and “road-roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988).
7. “Computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device.
8. “TUFS” means Technology Upgradation Fund Scheme announced by the Government of India in the form of a Resolution of the Ministry of Textiles vide No. 28/1/99-CTI of 31-3-1999.
9. Machinery and plant includes pipes needed for delivery from the source of supply of raw water to the plant and from the plant to the storage facility. 10. “Speed boat” means a motor boat driven by a high speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometers per hour in still water and so designed that when running at a speed, it will plane, i.e., its bow will rise from the water.
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