Additional Depreciation – Who can Avail?, availability, Rate of Add Dep.

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Additional Depreciation: Here you get information about What is the percentage of additional depreciation and what are the conditions for the allowability of the same. Additional depreciation, as the name suggests, refers to depreciation which can be claimed under section 32 (1) (ilia), in addition to depreciation allowance as under section 32(1). Now check more details from below…

Who can avail additional depreciation?

The assessee who is engaged in manufacture or production of any article or a thing would be eligible to avail of additional depreciation.

A Special point to be noted would be that even printing, and or, publishing activity is deemed to be covered hereunder. Hence, this business would be eligible to avail of the additional depreciation.

Starting from the financial year 2016-17, additional-depreciation is also allowed to the business of generation and distribution of power. However, availing of additional depreciation by the business of generation and distribution of power is not available if such business is following straight-line depreciation method.

Additional Depreciation [Section 32(iia)]

a. General Case :

  • Assessee engaged in the business of manufacture or production of any article or thing or (with effect from the assessment year 2013-14) “In business of Generation, Transmission or Distribution of power
  • New Machinery or plant acquired and installed after March 31, 2005 (other than ships & aircraft)
  • it must be an eligible plant and machinary

b. Specific case :

  • Assessee, sets up an undertaking for manufacture or production of any article or thing,
  • On or after the 1st day of April, 2015
  • In any notified backward area,
  • In Andhra Pradesh or Bihar or Telangana or West Bengal,
  • Acquires and installs any new machinery or plant (other than ships and aircraft)
  • for the purposes of the said undertaking n during 1/4/15 and 31/3/2020 in the said backward area

c. Conditions to be satisfied :

  • i. Plant & Machinery should not be used by any person in India or outside India before the date of installation by assessee.
  • ii. Plant & Machinery not installed in office premises or in residential accommodation including a guest house.
  • iii. Plant & Machinery should not be an office appliance or road transport vehicle.
  • iv. Whole of actual cost of Plant & Machinery not allowed as deduction under P/G/B/P of any one previous year.

d. Quantum of Increased Depreciation

General case : 20% for the Previous Year in which conditions are satisfied (If acquired and put to use for less than 180 days then 10% & balance 10% next year )

Special case : 35% for the Previous Year in which in case of notified backward areas of respective states (If acquired and put to use for less than 180 days then 17.5% & balance 17.5% next year)

Special point : Eligibility for grant of additional depreciation under section 32(1)(iia) in the case of an assessee engaged in printing or printing and publishing [Circular No. 15/2016, dated 19-5-2016]

the term “manufacture” or “production”, “article” and “things” have been interpreted in many judicial pronouncements and according to the judgment, a taxpayers which are engaged in the following kind of activities are not eligible fo the additional depreciation-

  • cooking food in Hotel-Indian Hotels Co. Ltd v. ITO [2000]112 taxman 46 (SC)
  • construction of dam, building or contract for civil engineering – CIT v. Buildmet (P.) Ltd. [1993] 204 ITR 413 (SC), CIT v. N.C Budhraja & co.[1993] 204 ITR 412(SC)
  • Cutting and polishing raw diamonds – CIT v. Gem India Manufacturing Co. [2001] 249 ITR 307 (SC)
  • incubate of eggs – CIT v. Venkateswara Hatcheries (P) Ltd. [1999] 237 ITR 174 (SC)
  • compressing piling for building – CIT v. Pressure Piling Co. (I) (P.) Ltd. [1993) 204 ITR 412 (SC)

Additional depreciation availability

Additional-depreciation is allowed only on new machinery or plant in above businesses.

However, such machinery and plants shall exclude any aircraft or ships purchased and installed after 31st March 2005.

Rate of additional depreciation

  • Additional depreciation allowed @ 20% of the cost of assets.
  • Additional depreciation will be allowed @ 35%, where the eligible assessee is engaged in manufacture or production of any article or thing in notified backward areas.

However, such notified backward areas are situated in Andhra Pradesh, Bihar, Telangana, and West Bengal.

There are conditions for availing such enhanced rate for additional-depreciation

  • the machinery or plant should have been purchased and installed during April 1st, 2015 till March 31st, 2020
  • The manufacturing unit is to be set up on or after 1st April 2015.

If assets are used for less than 180 days then

  • Additional depreciation would be available at the half of rate than that allowed, which would be 10% or 17.5% in the year of acquisition.
  • Starting from the financial year 2015-16, rest of half additional-depreciation which is equal to 10% or 17.5% of any relevant year, would be allowed in the next financial year.

Items on which additional depreciation are not allowed

  • Plant and machinery which is already used (whether in India or outside) before installation by the assessee.
  • Office appliances like furniture etc.
  • Road transport vehicle
  • New or second-hand machine or plant installed in office premises or residential premises or accommodation. This even excludes such installation in guest houses also.
  • Plant and machinery, for which actual cost is allowed as deduction while computing income from the business for any previous year.
  • 100% depreciable assets.
  • Dealers or service providers with respect to power generation and distribution.
  • Where assessee engaged in generation and distribution of power follows straight-line method for depreciation.

Example

Industrial unit acquired new assets costing Rs.100000, in the month of January 2016. The normal depreciation rate is assumed to be 10%.

Hence,

Additional-depreciation  (for the financial year 2015-16) = 100000 X 20% X 6/12 = 10000

Additional-depreciation  (for the financial year 2016-17) = 100000 X 20% X 6/12 = 10000

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