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Depreciation on computer software

Amit Agarwal (Articled) (37 Points)

27 December 2011

As per the ammendment in the schedule VI computer software is now to be shown under the head intangible aseet. Can any one tell me whether the rate of depreciation should continue to be 40%(WDV) or as on intangible asset?

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Yogesh Bhandari (CA FINAL Student) (429 Points)
Replied 27 December 2011

As per AS 26, Computer software is dealt by this AS and hence, applicable to the company, so there is no question about the amendment as it is amended in consideration with AS 26.

Further, old Schedule VI specify that 40%(WDV)is Data Processing Machines including computers and it does not include Computer Software.

On a conclusion, it is dealt by AS 26 as intangible asset or as an expense.

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Amit Agarwal (Articled) (37 Points)
Replied 27 December 2011

Dear Sir,

Thanx for your reply, but again under Income Tax Act it has been specifically mentioned that computers include computer software and dep @ 60% is allowed, thereby not treating the same as intangible aseet. Could you please suggest the best practice followed?

Yogesh Bhandari (CA FINAL Student) (429 Points)
Replied 28 December 2011

you are right that depreciation under Income Tax Act it has been specifically mentioned that computers include computer software and dep @ 60% is allowed. The beat practice is that,, follow the acts, rules...

As per compnies Act, Software shown as follows:-
intangible asset--- and write off during its life
or as an expenses---- and hence shown as an expense in the year in which occured.

And,
As per Income tax Act, Depreciation allowable @ 60%...
If you consider both, then both write off the sofware amount in different ways, this will result in DTA / DTL.

Further, if you does not identify the Software amount, in any case like computer purchased having all software application and invoice have not separable the amount or only a amount not much details of software, then you consider to show the same in Computer (as per companies Act)