Depreciation and its chargeability under the act [section 32]

Depreciation and its chargeability under the act [section 32]
Calculation of depreciation in accounts is very much different from the depreciation that
is calculated under the income tax act.
Block concept of depreciation
Income tax follows the block concept of depreciation. Under this concept the assets are
grouped in one block not on the basis of type of assets but they are grouped on the
basis of common rate of deprecation. The following example will make it clear.
If an assessee has the following assets which are of the given value and the rate of
depreciation the distinction of the assets as per accounts would be different from that of
income tax

Particulars Amount Rate of
Dep
Motor car Local 135000 20%
Office Building 500000 10%
Delivery vans 450000 25%
Factory building 750000 20%
Furniture 200000 10%
Fittings and Equipments 150000 25%
Motor car Imported 500000 25%


The classification of the assets as per accounts is on the basis of the type of assets
whereas in the case of income tax it is on the basis of rate of depreciation.
AS PER ACCOUNTS AS PER INCOME TAX
Particulars Amt Amt Particulars Amt Amt
Motor cars and
Vehicles
Block A Rate
10%
Motor car local 135000 Office Building 500000
Motor car Imported 500000 Furniture 200000 700000
Delivery vans 450000 1085000
Buildings Block B Rate
20%
Factory buildings 750000 Motor car Local 135000
Office buildings 500000 125000 Factory building 750000 885000

Some important points of depreciation of assets.
According to the provision of section 32 depreciation is charged the normal rate
prevailing for the assets as per the schedule given under the act.
If an asset is purchased and in the first year it is used for 180 days or more in the
previous year then the full rate of deprecation has to be provided for that year.
For example is an asset was purchased for Rs 200000 on 1st of august 2001 and if the
rate of depreciation is 15% then the amount of depreciation would be Rs 30000 i.e. 15%
of 200000 for the full year. Actually the asset was purchased in the month of august
2001 and it was used for eight months from Aug to March 2002 then also deprecation
has to be charged for the entire year and not only for eight months.
Similarly if an asset is purchased and in the first year used for less than 180 days
in the previous year then half rate of deprecation has to be provided for that year.
For example is an asset was purchased for Rs 200000 on 1st of December 2002 and if
the rate of depreciation is 15% then the amount of depreciation would be Rs 15000 i.e.
50% of 30000 for half year. Actually the asset was purchased in the month of December
2001 and it was used for four months from Dec 2001 to March 2002 then also
deprecation has to be charged for the six months and not only for four months. Thus it
also means that if the asset is purchased on the last day of the year then also the
same would be depreciated for half year even if the asset was used for only one
day.
No depreciation is to be provided in the year of sale. In fact there is no method of
calculating deprecation nor profit or loss on sale of individual assets.