Dep on New Machinery Purchased by a Manufacturing Unit

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varun gupta (Querist)
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22 June 2009 IF a Manufacturing Unit has purchased New Plant & Machinery during the Financial Yr 2008-09, then Depriciation over the same will have to be charged at what rate under Income Tax Act and under Companies Act? Will the provision of Additional Dep applicable over it? WIll it be mandatory or optional?

Sanjeev Jain

Sanjeev Jain (Expert)
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22 June 2009 If a manufacturing unit purchased a fixed assets which will be used in manufacturing process, then the assessee will be entitled to claim additional depreciation @20% on cost over and above its normal dep. @15%. As far as company law is concerned dep will be charged acc. to the rates prescribed by schedule XIV of Companies act and accordingly 13.91% in case of WDV if plant doesnt used for continuous process & if used for continuous then charged @15.33%

varun gupta

varun gupta (Querist)
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23 June 2009 This claim for Additional Depriciation is Optional or Mandatory?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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21 July 2024 Under the Income Tax Act and the Companies Act in India, depreciation rates for plant and machinery are prescribed differently. Here’s how it works:

### Depreciation Rates

1. **Income Tax Act:**
- For new plant and machinery acquired and installed during the financial year 2008-09, the depreciation rate applicable under the Income Tax Act depends on the type of asset. As per the Income Tax Rules, 1962, the rates for different types of plant and machinery can vary. For example:
- General plant and machinery: Depreciation rate may typically range from 15% to 25%.
- Special rates for certain assets: Special types of machinery might have higher depreciation rates, such as 40% or more.
- Additional depreciation: Under section 32(1)(iia) of the Income Tax Act, an additional depreciation of 20% of the actual cost of new machinery or plant (other than ships and aircraft) is allowed if certain conditions are met. This additional depreciation is optional.

2. **Companies Act, 2013 (Schedule II):**
- The Companies Act, 2013 prescribes useful life and depreciation rates based on the schedule provided. However, it does not provide for additional depreciation. The depreciation rates are generally lower compared to those under the Income Tax Act, and they are based on the estimated useful life of the asset.

### Optional vs. Mandatory Provision

- **Additional Depreciation (Income Tax Act):**
- The claim for additional depreciation under section 32(1)(iia) of the Income Tax Act is optional. It allows businesses to claim an additional 20% depreciation in the year of acquisition over and above the normal depreciation rates.
- To claim additional depreciation, the following conditions must typically be met:
- The asset should be new and acquired and installed after a certain date (as per the relevant financial year provisions).
- It should be used for the purpose of business or profession.
- The asset should not have been used or installed before the date of acquisition.

- **Mandatory Depreciation (Both Acts):**
- Normal depreciation on plant and machinery is mandatory under both the Income Tax Act and the Companies Act. It is a deductible expense that reduces taxable income.

### Practical Application

- **Income Tax Treatment:**
- In your case, for plant and machinery purchased during the financial year 2008-09, you would typically determine the depreciation rates as per the Income Tax Rules for that year. If eligible and opted for, you can claim additional depreciation under section 32(1)(iia) in addition to normal depreciation.

- **Companies Act Treatment:**
- For financial reporting purposes under the Companies Act, 2013, depreciation would be calculated based on the prescribed rates in Schedule II.

### Conclusion

- Depreciation rates and provisions differ between the Income Tax Act and the Companies Act.
- Additional depreciation under the Income Tax Act is optional and subject to meeting specific conditions.
- Normal depreciation is mandatory under both Acts and should be accounted for in your financial statements and income tax returns accordingly.

For accurate calculation and compliance, it is advisable to consult with a qualified chartered accountant or tax advisor who can guide you through the specific rules and ensure proper application of depreciation provisions under both Acts.