Explain the term depreciation or Discuss those conditions which are laid down under the ordinance for depreciation allowance
A decrease in the value of asset through wear and tear is called depreciation.
The income tax law allows the deduction of depreciation up to certain conditions which computing the taxable profit.
Following are the important conditions for the admissibility of the depreciation :
- Entitled Assets For Depreciation :- Building , Machinery, Plan and furniture are eligible assets for depreciation.
Building :- It means a constructed structure and not a land. For example the building of factory.
Machinery :- All kind of machines which are used for the business purposes are called machinery.
Furniture :- All the fittings are included in the furniture.
Plant :- Vehicle aircraft or ship and surgical equipment which are used in business profession are also included in plant.
Note : Those books on which investment allowance not been given are also included in the plant.
- Use For The Business Purpose :- Depreciation is allowed only those assets which have been used completely for the business or profession purposes.
If one asset is being used for both the purposes business and personal then depreciation will be allowed according the business proportion.
- Use During Income :- It is also necessary that such assets have been used only during the income year.
- Tangible Assets :- In tangible assets like good will are not entitled for depreciation. Only tangible assets like building and machinery are eligible for depreciation.
- Depreciation Rate :- In the income ordinance schedule III and rule two rates of depreciation had been prescribed.
SaleOf Asset :-
(i). No any depreciation is allowed if the asset is sold of by the assessee in that income year.
(ii). At the time of sale if the value of asset exceeds then the depreciated value the surplus will be considered the income of assessee.
(iii). If the sale proceed is less than the depreciated value the deficit shall be deducted from the income of a business or profession.
Note : If the above conditions are fulfilled then depreciation will be provided.
- Should Not Exceed Than The Cost :- The aggregate depreciation shall not exceed then original cost of any asset.
- Particulars Of The Depreciable Asset :- Depreciation claim may be allowed if the assessee has provided all the particulars of the depreciated assets at the time of filling a return of total income.
- Ownership Of The Assets :- If the assessee is not the owner of the asset then he will not be allowed for the depreciation allowance.