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October 29, 2020

Higher depreciation rates of 30% and 45% on motor vehicles is applicable if purchased from 23.08.2019 to 31.03.2020.

by CA Shivam Jaiswal in Income Tax

Higher depreciation rates of 30% and 45% on motor vehicles is applicable if purchased from 23.08.2019 to 31.03.2020.

Depreciation under the Income Tax Act is a deduction allowed for the reduction in the real value of a tangible or intangible asset used by a taxpayer. The concept of depreciation is used for the purpose of writing off the cost of an asset over its useful life. While computing one’s income, the depreciation as per Income Tax Act, 1961 is allowed while the book depreciation is disallowed. This is because the Income Tax Act prescribes its own rate of depreciation. The Income Tax Act allows depreciation on the Written down Value of the assets. The depreciation is computed on ‘Block of assets’ at the rates prescribed rates provided in the Income Tax Rules, 1962.

As per section 32 of Income Tax Act, 1961, an assessee is entitled to claim depreciation on fixed assets only if the following conditions are satisfied:

  • Assessee must be owner of the asset – registered owner need not be necessary.
  • The asset must be used for the purposes of business or profession
  • The asset must be used during the previous year.

Co-owners can claim depreciation to the extent of the value of the assets owned by each co-owner. Depreciation is mandatory from A.Y. 2002-03 and shall be allowed or deemed to have been allowed as a deduction irrespective of a claim made by a taxpayer in the profit & loss account.

In a major relief to tax payers, the Central Board of Direct Taxation (CBDT) extended the deadline for filing returns by individual taxpayers for 2019-20 by a month. Now, the last date for filing tax returns is December 31. The CBDT said the deadlines have been extended in order to “provide more time to taxpayers for furnishing of Income Tax Returns.

CBDT had notified new depreciation rates for motor vehicles

While filing the ITR for FY 2019-20, it is crucial to now remember that, the CBDT had notified new depreciation rates of 30% and 45% on vehicles purchased between 23.08.2019 to 31.03.2020. The rate of depreciation on motor cars and other motor vehicles was amended and allowed a higher rate of depreciation for motor cars from 15% to 30%. In the case of Motor buses, motor lorries and motor taxis used in a business of running them on hire, the rate of depreciation increased from 30% to 45%.

In order to eligible for claiming a higher rate of depreciation, motor cars or motor vehicles must be acquired between 23.08.2019 and 31.03.2020. Only acquisition is not sufficient, it must be ‘put to use’ on or before 31.03.2020. Higher rate of depreciation is also applicable for second-hand or previously used motor cars or motor vehicles. It is also applicable on Motor buses, motor lorries and motor taxis used in a business of running them on hire basis. This benefit shall expire from 01.04.2020. Normal rates of depreciation shall apply in those cases.

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What are the prescribed Rates of Depreciation as Per Income Tax Act,1961 for FY 2019-20 (AY 2020-21)?

Rates of depreciation for Income Tax as applicable for the assessment year 2020-21

Block of assetsDepreciation allowance as a percentage of written down value
Building 
Buildings which are used mainly for residential purposes except hotels and boarding houses5
Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below10
Buildings acquired on or after the 1st of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities under section 80-IA(4)(i)40
Purely temporary erections such as wooden structures40
Block of assetsDepreciation allowance as a percentage of written down value
Furniture and Fittings 
Furniture and fittings including electrical fittings10
Machinery and Plant 
Machinery and plant other than those covered below15
Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st of April, 1990 15
Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd of August, 2019 but before the 1st of April, 2020 and is put to use before the 1st of April, 202030
Aeroplanes – Aeroengines40
Motor buses, motor lorries and motor taxis used in a business of running them on hire30
Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd of August, 2019 but before the 1st of April, 2020 and is put to use before the 1st of April, 2020.45
Block of assetsDepreciation allowance as a percentage of written down value
Commercial vehicle which is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st of April, 1999 and is put to use for any period before the 1st of April, 1999 for the purposes of business or profession in accordance with the third proviso of section 32(1)(ii)40
New commercial vehicle which is acquired on or after the 1st day of October, 1998, but before the 1st of April, 1999 in replacement of condemned vehicle of over 15 years of age and is put to use for any period before the 1st of April, 1999 for the purposes of business or profession in accordance with the third proviso to section 32(1)(ii)40
 New commercial vehicle which is acquired on or after the 1st day of April, 1999 but before the 1st of April, 2000 in replacement of condemned vehicle of over 15 years of age and is put to use before the 1st of April, 2000 for the purposes of business or profession in accordance with the second proviso to section 32(1)(ii) 40
New commercial vehicle which is acquired on or after the 1st of April, 2001 but before the 1st of April, 2002 and is put to use before the 1st of April, 2002 for the purposes of business or profession40
Block of assetsDepreciation allowance as a percentage of written down value
New commercial vehicle which is acquired on or after the 1st of January, 2009 but before the 1st of October, 2009 and is put to use before the 1st of October, 2009 for the purposes of business or profession40
Moulds used in rubber and plastic goods factories30
Air pollution control equipment40
Water pollution control equipment40
Solid waste control equipment being caustic / lime / chrome / mineral / cryolite recovery systems40
Solid waste recycling and resource recovery systems40
Machinery and plant, used in semi-conductor industry covering all integrated circuits (ICs) (excluding hybrid integrated circuits) ranging from small scale integration (SSI) to large scale integration/very large-scale integration (LSI/VLSI) as also discrete semi-conductor devices such as diodes, transistors, thyristors, triacs, etc30
Block of assetsDepreciation allowance as a percentage of written down value
Life-saving medical equipment40
Containers made of glass or plastic used as re-fills40
Computers including computer software40
Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased under TUFS on or after the 1st of April, 2001 but before the 1st of April, 2004 and is put to use before the 1st of April, 200440
Machinery and plant, acquired and installed on or after the 1st day of September, 2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility under section 80-IA(4)(i) 40
Block of assetsDepreciation allowance as a percentage of written down value
Wooden parts used in artificial silk manufacturing machinery40
Cinematograph films – bulbs of studio lights40
 Match factories – Wooden match frames40
Mines and quarries40
Salt works – Salt pans, reservoirs and condensers, etc., made of earthy, sandy or clayey material or any other similar material40
Flour mills – Rollers40
Iron and steel industry – Rolling mill rolls40
Sugar works – Rollers40
Energy saving devices, being specialised boilers and furnaces40
Energy saving devices, being instrumentation and monitoring system for monitoring energy flows40
Energy saving devices, being Waste heat recovery equipment40
Energy saving devices, being Co-generation systems40
Energy saving devices, being Electrical equipment40
Energy saving devices, being Burners40
Energy saving devices, being Other equipment40
Gas cylinders including valves and regulators40
Glass manufacturing concerns – Direct fire glass melting furnaces40
Block of assetsDepreciation allowance as a percentage of written down value
Mineral oil concerns: Plant used in field operations (above ground) distribution – Returnable packages Plant used in field operations (below ground), but not including kerbside pumps including underground tanks and fittings used in field operations (distribution) by mineral oil concerns40
Mineral oil concerns – other oil wells not covered above (with effect from the assessment year 2016-17)15
Renewal energy devices40
Books owned by assessee’s carrying on a profession: Books, being annual publications Books, other than those covered above40
Books owned by assessee’s carrying on business in running lending libraries40
Ships 
Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull20
Vessels ordinarily operating on inland waters20
Vessels ordinarily operating on inland waters being speed boats20
Intangible Assets 
Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature25

One important point to note here is that if the asset is put to use for less than 180 days during the previous year, then depreciation claim shall be restricted to 50 per cent of the normal depreciation. Full depreciation as per the prescribed rate is allowed if the asset is put to use for 180 days or more during the previous year. This restriction applies for the first year of acquisition and not in the subsequent years.

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