How to calculate depreciation for block wise assets

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pappula sathvik (Querist)
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25 November 2015 Hi,

I have to know how to calculate depreciation on block wise assets as per Income tax act.
Please explain Income tax block wise asset depreciation report

Thanks,
Sathvik

CA RAKESH KUMAR THAKUR

CA RAKESH KUMAR THAKUR (Expert)
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25 November 2015 PLEASE REFER SEC. 32 OF INCOME TAX....AND DOWNLOAD EXCEL FORMAT FOR DEP. CALCULATION FROM DOWNLOAD SECTION OR YOU CAN GIVE ME YOUR EMAIL ID ....I WILL SEND YOU THE FORMAT.

pappula sathvik

pappula sathvik (Querist)
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26 November 2015 Thank you Rakesh.

I Refer sec.32 of Income Tax and I give you my mail id please send me Income tax act block wise asset depreciation report.

pappulasathvik@gmail.com

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pappula sathvik

pappula sathvik (Querist)
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03 December 2015 Kindly explain Income tax act fixed asset depreciation report format and calculation process.

Thanks,
Sathvik

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 ### **Understanding Depreciation Under the Income Tax Act**

Under the Income Tax Act, depreciation is calculated on a block-wise basis. This means that assets are grouped into blocks based on their category, and depreciation is calculated for each block. The method of calculating depreciation and the blocks of assets are defined under Section 32 of the Income Tax Act.

Here’s a comprehensive guide on how to calculate depreciation for block-wise assets:

### **1. Definition of Asset Blocks**

**Blocks of Assets:** Assets are grouped into blocks based on their nature, and depreciation is calculated on the entire block. The following are common blocks:

- **Block 1:** Plant and Machinery
- **Block 2:** Building
- **Block 3:** Furniture and Fixtures
- **Block 4:** Vehicles
- **Block 5:** Intangible Assets (like patents, copyrights)

### **2. Depreciation Calculation Method**

#### **2.1. Determine the Block of Assets**

For each financial year, categorize your fixed assets into their respective blocks. For example:

- **Block 1 (Plant and Machinery)**
- Machinery A: ₹10L
- Machinery B: ₹5L

#### **2.2. Calculate Depreciation for Each Block**

Depreciation is calculated using the following methods:

- **Straight-Line Method (SLM):** Depreciation is charged uniformly over the useful life of the asset.
- **Written Down Value Method (WDV):** Depreciation is charged on the reducing balance of the asset.

For most assets, the Income Tax Act prescribes the WDV method. The rates of depreciation vary by asset type.

#### **2.3. Calculate Depreciation**

**Block-wise Depreciation Calculation:**

1. **Determine the Opening Balance of the Block:**
- Example: Block 1 (Plant and Machinery) - Opening Balance: ₹15L

2. **Add New Additions During the Year:**
- Additions: ₹2L

3. **Calculate the Total for the Block:**
- Total Block Value = Opening Balance + Additions = ₹15L + ₹2L = ₹17L

4. **Apply Depreciation Rate:**
- For Plant and Machinery, the usual depreciation rate is 15% under the WDV method.

\[
\text{Depreciation} = \text{Total Block Value} \times \text{Depreciation Rate}
\]

\[
\text{Depreciation} = ₹17L \times 15\% = ₹2.55L
\]

5. **Adjust for Any Disposals:**
- If any assets were sold or disposed of, subtract the sale value from the block before calculating depreciation.

6. **Calculate the Closing Balance of the Block:**
- Closing Balance = Total Block Value - Depreciation

\[
\text{Closing Balance} = ₹17L - ₹2.55L = ₹14.45L
\]

### **3. Format of Fixed Asset Depreciation Report**

**Fixed Asset Depreciation Report Format:**

| Block of Assets | Opening Balance | Additions | Total Block Value | Depreciation Rate | Depreciation Amount | Closing Balance |

### **4. Additional Considerations**

- **Part-Year Depreciation:** For assets added or disposed of during the year, calculate depreciation proportionately.
- **Tax Regulations:** Ensure compliance with the latest tax regulations and rates as prescribed by the Income Tax Act.
- **Record Keeping:** Maintain proper records of asset purchases, additions, disposals, and depreciation calculations.

### **Summary**

To calculate depreciation for block-wise assets:

1. **Categorize assets into blocks.**
2. **Determine the opening balance and any additions.**
3. **Calculate depreciation using the prescribed method and rate.**
4. **Adjust for any disposals.**
5. **Calculate the closing balance of each block.**

This method ensures that depreciation is accurately accounted for each block of assets, facilitating compliance with tax regulations and proper financial reporting.