The depreciation term has no specific definition under the Income Tax Act Regulation 2,001th However, we understand your concept of general meanings are contained in the books.
For example:-
A decline to take the value of assets is called depreciation or obsolescence.
In other words, the depreciation of the process of allocating the cost is estimated a depreciable asset over its useful life when subjected to the specified in Part 1 of the third to the regulation on the tax reform of 2001 Schedule.
Now the question arises, what is the role of depreciation tax laws.
Note that in computing the taxable profits of a company, the law permits a deduction for depreciation on business income tax.
1) The depreciable assets.
Depreciation is calculated only in depreciate assets.
2) The commercial use of the asset.
Asset classes is determined in the business of a person whose taxable income.
3) Total depreciation and amortization.
3.1) If the assets are used exclusively for business.
If at the calculated parameters in Part 1 of the Third Schedule of the Regulation on taxes in 2001, against the value of depreciation of assets at the beginning of the year.
3.2) If the assets will be partly used for business.
Amount of depreciation is justified as a deduction, the fair share amount would be limited permitted if the total assets were used to calculate the taxable business income.
Illustration
Shahid has a building that supported R. 600,000. I 3/4th of your building for your company and for the rest of his family home. Calculate the tax exemption for companies.
Solution
Written by value (WDV) at the beginning (cost) of 600,000.
The depreciation rate of 10% of the Third Schedule WDV.
The total depreciation of the building (600,000 x 10%) 60.000.
The depreciation of the corporation (60,000 x 4.3) 45,000.
4) Depreciation is charged to the value (WDV) in force.
Depreciation is charged to the value (value at the beginning of the year) of a depreciable asset in force.
As I write the value of depreciable assets is calculated.
(4.1-1) If purchased during the year.
Total cost of the asset XXX.
Initial allocation, where XXX: Less.
Written by value (WDV) at the beginning of the year XXX.
Note: In the absence of a total cost of the asset allocation WDV is this year.
(4:1-2) When property is acquired before the year used solely for business.
Total cost of the asset XXX.
Initial allocation, where XXX: Less.
Total depreciation was
loaded in the previous year XXX.
WDV at beginning of year XXX.
(4:1-3) WDV when the asset is partially used for business.
It is calculated on the basis that the asset only to the income subject to corporate taxes has been used.
5) The total amount of depreciation does not exceed the actual cost of assets.
The total deductions allowed to a person during the period of ownership of a depreciable asset depreciation (U / S 22) and the initial allocation (U / S 23) does not exceed the actual cost of the assets.
6) The disposal of fixed assets during the year.
Without deducting depreciation allow a person to corporation tax year in which assets are available (sold).
6.1) What is the treatment of gains or losses on disposal (sale) of assets?
6.1 to 1) If the proceeds from the sale exceeds SLA, the difference in the sample of earnings.
The tax treatment
Is subject to income tax at the top of the company
6.1 to 2) If the SLA from the sale proceeds exceed the loss of the different samples. Deduction from business income subject to tax.
7) assets with a useful life of more than a year.
is not taken into account depreciation of properties with normal life, must not exceed one year, but its replacement or renewal shall be allowed as revenue expenditure.
8) The compensation for impairment of real estate.
The cost of real estate or improved structural properties do not include the cost of land.
In other words, if depreciable assets consist of the construction, this land not be taken into account depreciation values.
For example, Mr. Ahsan has depreciable assets in the form of the building cost Rs 500,000 (including land management costs 200,000 rupees.). Depreciation is calculated at Rs 300,000, which puts the cost for construction.
9) Depreciation of the owner.
In the case of an asset owned by the owner.
a) The leasing companies.
b) An investment bank.
c) Mudaraba.
d) A bank provided.
e) the development of financial institutions.
is rented to another person. Depreciation is allowed for these people, because the assets are used in its leasing business.
10) Limiting depreciation on leased assets disadvantages.
may be compensation for the depreciation of the leased assets rental income only rent. of unabsorbed depreciation should be in the following / be set next year.
the initial allocation
Additionally to the normal depreciation (U / S 22 and Part-1 of the Third Schedule), a further depreciation (U / S 23 and Part 11 of the Third Schedule) allowed as a deduction for corporation tax under. This additional depreciation is called the initial allocation.
In short, there are two forms of depreciation on the order of the Income Tax Act 2,001th
1) the normal depreciation
2) the initial allocation
Main difference between depreciation and the original performance.
Determination of the normal depreciation on the depreciable property charged, while the original allocation of the depreciable assets eligible for one is allowed in the life of the asset.
Conditions Applicable to Allowability of Initial Allowance.
1) Eligible depreciate asset.
Admissible eligible depreciable asset only.
2) Place of Service
eligible depreciable asset was placed in service in Pakistan for the first time in a year.
3) Date of eligibility
Later, in the following years.
i) A tax year in which the asset is used for the first time in Pakistan.
ii) A tax year in which commercial production is commenced.
4) The rate of the initial grant
It allows 50% of the cost of the asset.
Note: In case of lease, rental income, that he only rental. Any amount can not be included on the initial allocation, a deduction in future years be deferred.
5) The security must be held by the person
For the admissibility of the original allocation, the assets held by the person whose taxable income is determined.
Eligible Depreciable Asset.
Eligible depreciable property means depreciable property, other than the following assets.
a) Any road vehicle, unless the veil of the car
b) Any device with accessories
c) Any plant or machine is already used in Pakistan
d) All equipment or machinery, for which all costs were deducted in the tax year in which it was purchased
The Third Schedule
[1st-Part]
Depreciation
Depreciation rates for purposes of § 22 stated.
i) Construction (all types) 10%
ii) Furniture (including equipment), machinery and equipment
(Ang), motor vehicles (all types), ships, technical or professional books. 15%
iii hardware), including printing presses, monitor, and uses related terms (plant and machinery for the manufacture of computer), aircraft engines and aircraft.
A reduction of 30%
iv) computed in the case of concerns that oil revenue can be used in accordance with the rules in Part 1 of the Fifth Schedule.
a) Below ground installations 100%
b) The facilities of the offshore platform and production. 20%
[2nd Part]
the initial allocation
i) The first rate allowance U / S 23 and 23A would be 50%
ii) The rate of duty (FYA) u the first year of 23A / s is 90%
[3rd Part]
The depreciation rate for pre-opening U / S 25 is 20%
depreciable assets
Depreciable property means.
a) movable property
b) property (other than developed land)
c) the structural improvement of the assets of a person
i) has a normal life span of over one year
ii) is likely to lose value due to aging, wear or y. and
iii) in whole or in part, by the person to receive a taxable business income.
Note: The total deductible costs of an asset in the year of acquisition, while the assets are not treated as depreciable assets.
Developed land
A parcel is opened without any improvement. If no or a road or rail, etc. Start-built runway on earth as it is called the improved land. Therefore, only the land not included in the definition of a depreciable asset.
structural improvement of real estate
structural improvement of real estate by the construction or installation of a building, road, driveway, parking, rail, pipeline, bridge, tunnel, landing path of the air-port, canal, dock, pier, wall, fence , power lines, water or the sewerage, drainage, landscaping or damage to property such as land.
Movables
It includes machinery, furniture, vehicles, boats, technical or professional books, computers, airplanes, etc.
Real Estate
Including buildings and administrative offices, factories, workshops, cinema, hotel, hospital, school and homes or work.
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