Corporate Taxation, Corporate Tax In India, Indian Taxation Guide

Depreciation

Depreciation is normally calculated on the declining balance method at varying rates and is available for a full year, irrespective of the actual period of use of the asset in the year of the acquisition of the asset. Depreciation is allowed at half the normal rate, if the as set is used for less than 180 days in that year. No depreciation is available in the year of the sale of the asset.

Depreciation is calculated on the opening written-down value of the block of assets plus the additions to the block less the sale proceeds/ scrap value of selections from the block. Depreciation at 100% is allowed in respect of machinery and equipment the unit cost of which does not exceed Rs. 5,000. No depreciation is allowed in respect of motorcars manufactured outside India, unless they are rental cars for tourists or where such motorcars are used outside India for the purposes of business. No depreciation is allowed on plant and machinery if actual cost is otherwise allowed as a deduction in one or more years under an agreement entered into with the Central Government for prospecting, etc. of mineral, oil. The rates applicable for the accounting year ending March 1996 :

Blocks of Assets	Depreciation Rates (%)
Buildings -- Dwelling units with plinth area not exceeding 80 square meters and hotels	20
-- Mainly residential	5
-- Others	10
Purely temporary structures	100
Machinery and Equipment -- General	25
Motorcars, other than those used in a business of hire, acquired after April 1, 1990	20
Airplanes, air engines; specified moulds; air and water pollution control equipment; solid waste control equipment; motor buses; motor trucks; motor taxis used in a business of hire	40
Specified energy-saving/ renewable energy devices; specified machinery used in mines and quarries, mineral oil concerns, salt and sugar works, iron and steel industries, glassworks, etc.	100
Furniture and Fittings -- General	10
Special furniture and fittings used in hotels, cinemas, etc.	15
Oceangoing ships, including dredgers, etc., and speedboats	20
Inland water vessels	10

Set-off & carry forward of losses

Business losses incurred in a tax year can be set off against any other income earned during that year, except capital gains. In the absence of adequate profits unabsorbed depreciation can be carried forward and set off against profits of the next assessment year, without any time limit. Unabsorbed business losses can be carried forward and set off against business profits of subsequent years for a period of eight years; the unabsorbed depreciation element in the loss can however, be carried forward idefinitely. However, this carry forward benefit is not available to closely-held (private) companies in which there has been no continuity of business or shareholding pattern. Also, any change in beneficial interest in the shares of the company exceeding 51 per cent disqualifies the private company from the carry forward benefit.