Depreciation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 June 2015 One of the partnership firm has not charged depreciation in books of accounts i.e not taken depreciation in books. the firm willing to claim depreciation in tax return as per rates of income tax act. it there any recent amendment in this regard for compulsory charging depreciation in books of account for claiming depreciation in income tax?

Ankur Singhal

Ankur Singhal (Expert)
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15 June 2015 Pls refer below.

Non-claiming of depreciation may at times be more beneficial rather than claiming it. Accordingly one may plan not to claim depreciation in a particular year and to claim the same in a subsequent year, in which depreciation can be claimed at a higher written down value due to non-claiming of depreciation in the earlier year. In this process the benefit of depreciation is not lost but it is deferred only. In the following situations it is advisable not to claim the depreciation- i) In case where certain deductions and allowances like brought forward investment allowance may lapse for insufficiency of profits, in a particular year, if the depreciation is claimed. ii) In case of non-corporate assessees expecting higher profit in the subsequent year or years, if their present income is falling in lower tax bracket, as claim of depreciation in the subsequent years will help them reducing the taxable profits and thereby saving tax, which would have been payable at a higher rate considering the slab rates. Non-claiming of depreciation may be used for avoiding the provisions of section 50. It may be noted that profit on sale of depreciable asset is treated as Short Term Capital Gain under section 50. Therefore, if any person desires to hold an asset for the purpose of re-sale at a future date, particularly in cases where such asset is retained for such period which may entitle him to claim it as a long term asset, then it is advisable not to claim depreciation on the same. In such a process, the profit on sale of the asset will be beyond the mischief of sec. 50 and shall be treated as Long Term Capital Gain (LTCG). As a result such assessee will be entitled to the benefit of cost inflation index as well as the concessional rate of tax on LTCG. Further w.e.f. assessment year 1997-98 depreciation can be carried forward for 8 assessment years only, as such it has become more important to claim it only in the year in which taxable profit arises. - See more at: http://taxguru.in/income-tax/understanding-deprecation-section-32-income-tax-act-1961-latest-case-laws.html#sthash.hvmm8ITl.dpuf