06 July 2024
To calculate depreciation for a car that was sold in October 2020 for a private limited company in India, you typically use the Written Down Value (WDV) method as per the Income Tax Act. Here's a step-by-step example of how you can calculate depreciation:
### Example Scenario: Assume the following details for the car: - **Cost of the car when purchased:** Rs. 10,00,000 - **Date of purchase:** April 1, 2018 - **Date of sale:** October 15, 2020 - **Depreciation rate:** 15% per annum on WDV basis
### Step-by-Step Calculation:
1. **Calculate Annual Depreciation:** - Depreciation is calculated annually based on the WDV method. The WDV is reduced every year by the amount of depreciation claimed.
- **Year 2 Depreciation:** - WDV at the beginning of Year 2 = Rs. 10,00,000 - Rs. 1,50,000 = Rs. 8,50,000 - 15% of Rs. 8,50,000 = Rs. 1,27,500
- **Year 3 Depreciation:** - WDV at the beginning of Year 3 = Rs. 8,50,000 - Rs. 1,27,500 = Rs. 7,22,500 - 15% of Rs. 7,22,500 = Rs. 1,08,375
- **Year 4 Depreciation (up to October 2020):** - WDV at the beginning of Year 4 = Rs. 7,22,500 - Rs. 1,08,375 = Rs. 6,14,125 - Depreciation for 7 months (April 2020 to October 2020): - (15% of Rs. 6,14,125) * (7/12) = Rs. 54,819
2. **Calculate Total Depreciation Till October 2020:** - Sum up the depreciation amounts for all the years including the partial year up to October 2020.
3. **Calculate Written Down Value (WDV) as on October 2020:** - WDV = Cost of car - Total depreciation claimed - WDV = Rs. 10,00,000 - Rs. 4,40,694 = Rs. 5,59,306
4. **Account for Sale of the Car:** - When the car is sold in October 2020, any depreciation calculated till October reduces the WDV. - The difference between the sale price and the WDV as on October 2020 will be treated as either a capital gain or loss.
### Additional Considerations: - **Capital Gain or Loss:** The difference between the sale proceeds and the WDV is treated as a capital gain (if sale proceeds > WDV) or capital loss (if sale proceeds < WDV). - **Tax Implications:** Capital gains or losses from the sale of assets are subject to tax under the Income Tax Act, depending on the holding period and other conditions.
This calculation method adheres to the standard practice under Indian tax laws for calculating depreciation on assets like cars used for business purposes in a private limited company. If you have specific details or need further clarification based on your exact circumstances, consulting with a tax advisor or accountant would be advisable.
CAclubindia
