Depreciation on leasehold land as per income tax act

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 August 2011 One of My Auditee have land on lease for more then 90 years Can i chage depreciation on that land ?

If Yes What is the method of Calcualtion " WDV or SLM " as per income tax ?

Pls solve my problem with reference of Section and Case study If Possible

vijayakumar.sure

vijayakumar.sure (Expert)
Follow

04 August 2011 If the lease under which the property is acquired is short, the fixed installment method or straight line method of depreciation can be applied conveniently. If on the other hand, it be a long lease, the annuity method of depreciation would be more suitable. The value of the leasehold property should be written off during the term of the lease and the rate of depreciation should be fixed accordingly.

Message likes : 1 times

Amit Kumar Agarwal

Amit Kumar Agarwal (Expert)
Follow

22 September 2011 How will it be shown in ITR.

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

21 July 2024 In India, as per the Income Tax Act, 1961, and the Companies Act, 2013, land is generally considered a non-depreciable asset. Here's how the situation regarding leased land is typically handled:

### Depreciation on Leased Land

1. **Non-Depreciable Nature**: Land itself is not eligible for depreciation under both the Income Tax Act and the Companies Act. This applies regardless of whether the land is owned outright or leased.

2. **Leasehold Improvements**: While the land itself cannot be depreciated, any improvements or structures built on the leased land, such as buildings or other structures, are eligible for depreciation.

3. **Method of Calculation**:
- **Buildings and Leasehold Improvements**: Depreciation on buildings and leasehold improvements (such as constructed structures on leased land) is typically calculated using either the Straight Line Method (SLM) or the Written Down Value (WDV) method, depending on the asset class and company policy.

### Case Studies and References

Unfortunately, there isn't a specific case study or judicial precedent directly addressing depreciation on leased land itself because it's a well-established principle under Indian tax and accounting laws that land is not depreciable. However, leasehold improvements on land are depreciable.

### Practical Advice

Given the situation:
- **Leased Land**: Cannot be depreciated.
- **Leasehold Improvements**: Depreciation can be claimed on any buildings or structures erected on the leased land.

When auditing or preparing financial statements:
- Ensure that the correct classification of assets (land vs. buildings/leasehold improvements) is maintained.
- Clearly distinguish between the treatment of land (non-depreciable) and leasehold improvements (depreciable).

For specific guidance tailored to your auditee's circumstances, including any lease agreements or local regulations that may impact the treatment of leasehold improvements, it's advisable to consult with a qualified tax advisor or chartered accountant. They can provide precise advice based on the latest tax laws and regulations applicable to your situation.