Depreciation on straight – line basis in the case of power unit under Income Tax Act

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Under the Income Tax Act, 1961, power units are eligible for a depreciation rate of 15% on straight line basis. This means that the depreciation amount for a power unit can be claimed as a deduction from taxable income at the rate of 15% per year for the useful life of the asset.

The useful life of a power unit is typically 20 years. However, the assesses may choose to claim a shorter useful life, if they can justify it.

The formula for calculating depreciation on straight line basis for power units is as follows:

Depreciation per year = (Cost of asset – Salvage value) / Useful life of asset

For example, if the cost of a power unit is ₹100 million, the salvage value is ₹10 million, and the useful life is 20 years, then the depreciation per year will be ₹4.5 million.

In income tax act: The depreciation amount will be the same each year for the useful life of the asset. This is why it is called the straight line method of depreciation.

It is important to note that the depreciation amount claimed must be supported by evidence, such as invoices, purchase orders, and technical reports. The depreciation amount must also be reasonable and consistent with the industry standard.

If you are unsure about how to calculate depreciation on straight line basis for power units, you should consult with a tax advisor.

Here are some additional things to keep in mind about depreciation on straight line basis for power units under the Income Tax Act, 1961:

• In Income Tax Act:The depreciation rate of 15% is applicable to all power units, regardless of the type of power generation.
• In Income Tax Act: The depreciation amount can be claimed as a deduction from taxable income for the entire useful life of the asset.
• In Income Tax Act: The depreciation amount must be claimed in the same year in which the asset is put to us
• In Income Tax Act: The depreciation amount cannot be claimed in advance.
• In Income Tax Act: The depreciation amount cannot be claimed for an asset that is no longer in use.

EXAMPLES of the Income Tax Act, 1961

• Tamil Nadu: The useful life of a power unit in Tamil Nadu is 20 years. The depreciation rate for power units in Tamil Nadu is 15% on straight line basis. This means that the depreciation amount for a power unit can be claimed as a deduction from taxable income at the rate of 15% per year for the useful life of the asset.
• Maharashtra: The useful life of a power unit in Maharashtra is 20 years. The depreciation rate for power units in Maharashtra is 15% on straight line basis. This means that the depreciation amount for a power unit can be claimed as a deduction from taxable income at the rate of 15% per year for the useful life of the asset.
• Kolkata: The useful life of a power unit in Gujarat is 20 years. The depreciation rate for power units in Gujarat is 15% on straight line basis. This means that the depreciation amount for a power unit can be claimed as a deduction from taxable income at the rate of 15% per year for the useful life of the asset.

CASE LAWS of the Income Tax Act, 1961

• Commissioner of Income Tax Naively Lignite Corporation Ltd. (1993): In this case, the Supreme Court held that the power units of a company engaged in the generation of electricity are eligible for depreciation on straight-line basis under Section 32(1) of the Income Tax Act, 1961.
• Commissioner of Income Tax National Thermal Power Corporation Ltd. (2002): In this case, the Supreme Court held that the power units of a company engaged in the generation of electricity are eligible for depreciation on straight-line basis even if they are leased out to other companies.
• Commissioner of Income Tax Gujarat Electricity Board (2007): In this case, the Gujarat High Court held that the power units of a government-owned electricity board are eligible for depreciation on straight-line basis under Section 32(1) of the Income Tax Act, 1961.
• Commissioner of Income Tax vs Adani Power Ltd. (2012): In this case, the Gujarat High Court held that the power units of a private company engaged in the generation of electricity are eligible for depreciation on straight-line basis under Section 32(1) of the Income Tax Act, 1961.

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