Accountancy in India

>> Allowances in India

Depreciation Allowance

Asset depreciation usually is calculated according to the declining balance method. Allowance for depreciation is available only after the asset is ready for its business purposes.

Depreciation is allowed on the amount arrived at after adding to the declining balance value at the beginning of the year the actual cost of assets acquired during the year, reduced by the sale proceeds arising from the disposition of any asset in that block. In the event the assets acquired during the year are used for less than 180 days, only half of the admissible depreciation is allowed during the year.

The tax depreciation rates on declining balance method is as follows:

Assets Tax Rate (%)
Plant & Machinery 15%
Cars other than those that are hired out 15%
Computers including Software 60%
Furniture & Fittings including electrical fittings 10%
Buses, lorries & Taxies that are hired out 30%
Ships 20%
Residential Buildings 5%
Buildings other than Residential Houses 10%
Intangible assets such as patents, know-how,  or any other commercial right of similar nature 25%

Depreciation rates as per Companies Act:

Assets Tax Rate (%)
Plant & Machinery 18.10%
Cars other than those that are hired out 31.23%
Computers including Software n/a
Furniture & Fittings including electrical fittings 25.89%
Buses, lorries & Taxies that are hired out 39.30%
Ships 9.5%
Residential Buildings 9.5%
Buildings other than Residential Houses 4.87%
Intangible assets such as patents, know-how,  or any other commercial right of similar nature n/a

Investment allowance

The tax payer engaged in the manufacturing business is allowed additional allowance or deduction at the rate of 15% of the actual cost of assets acquired or installed from April 1, 2014 to March 31, 2017, if the aggregate amount of the actual cost of such new assets exceeds INR 1,000 million.

Investment linked incentive for research and development

Investment-linked tax incentives are provided by allowing deductions on any expenditure of capital nature incurred wholly and exclusively for the purposes of certain specified business transactions.

Nature of Expense Rate of Deduction
Revenue expenditure incurred on payment of salary to an employee engaged in scientific research for 3 years preceding the commencement of business. 100%
Payment to a research association/university, college or other institution for scientific research. 175%
Payment to an Indian company to be used for scientific research  and development. 125%
Payment to a research association/university or college or other institution for research in social science or statistical research  (notified by Central Government). 125%
Capital expenditure incurred within 3 years immediately preceding  the previous year (other than on acquisition of land). 100%

Latest version updated 13th October 2017

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