• Land: Land is also an intangible asset and cannot be depreciated. However, the cost of improvements made to land, such as buildings or roads, can be depreciated.
• Assets used for personal purposes: Depreciation is only allowed for assets that are used for business or professional purposes. Assets that are used for personal purposes, such as a car or a home, cannot be depreciated.
• Assets acquired under an agreement with the government: If an asset is acquired under an agreement with the government, and the actual cost of the asset is allowed as a deduction in one or more years, then depreciation is not allowed under Section 32 of Income Tax Act.
• Assets that are not used for at least 180 days in the year: Depreciation is only allowed for assets that are used for at least 180 days in the year. If an asset is not used for at least 180 days, then no depreciation is allowed

EXAMPLES

• Plant and machinery acquired and installed in a non-backward area of Andhra Pradesh, Bihar, Telangana, and West Bengal. These states have been notified as backward areas by the Central Government, and as such, additional depreciation of 35% is available on plant and machinery acquired and installed in these areas. However, this additional depreciation is not available in the non-backward areas of these states.
• Plant and machinery acquired and installed in a Special Economic Zone (SEZ). SEZs are areas that have been notified by the Central Government for promoting exports. As such, there are certain tax benefits available to taxpayers who set up businesses in SEZs. However, one of these benefits, additional depreciation of 35% on plant and machinery, is not available in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal.
• Plant and machinery acquired and installed in a notified industrial area in the state of Maharashtra. The state of Maharashtra has notified certain areas as industrial areas. As such, additional depreciation of 20% is available on plant and machinery acquired and installed in these areas. However, this additional depreciation is not available in the rest of the state of Maharashtra.

It is important to note that these are just a few examples, and there may be other cases where depreciation under section 32 of Income Tax Act is not available in specific states in India. It is always advisable to consult with a tax advisor to determine whether depreciation is available in a particular case.

Here are some other points to keep in mind regarding depreciation under section 32 of Income Tax Act:

• Depreciation is allowed on tangible assets, such as plant and machinery, furniture, and buildings.
• Depreciation is not allowed on intangible assets, such as goodwill and patents.
• Depreciation is calculated on the written down value (WDV) of the asset. The WDV is the original cost of the asset minus the accumulated depreciation.
• The depreciation rates are prescribed by the Income Tax Act. The rates vary depending on the type of asset.
• Depreciation can be claimed for a maximum of 50 years.
• Depreciation can be claimed even if the asset is not used for the entire year.

FAQ QUESTIONS

• What is depreciation under Income Tax Act?

Depreciation is a gradual decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. It is an expense that can be deducted from income to reduce taxable profits.

• What assets are eligible for depreciation under Section 32 of Income Tax Act?

The following assets are eligible for depreciation under Section 32of Income Tax Act:

* Tangible assets, such as machinery, plant, and buildings

* Intangible assets, such as patents, copyrights, and trademarks

• What are the rates of depreciation for different types of assets under Income Tax Act?

The rates of depreciation for different types of assets are specified in the Income Tax Rules. For example, the rate of depreciation for machinery and plant is 15%.

• How is depreciation calculated under Income Tax Act?

Depreciation is calculated using the following formula:

Depreciation = Cost of asset × Rate of depreciation × Useful life of asset

The cost of the asset is its purchase price, plus any other costs incurred in acquiring it, such as transportation and installation costs. The rate of depreciation is the percentage of the asset’s value that is depreciated each year. The useful life of the asset is the number of years it is expected to last.

• When can depreciation be claimed under Income Tax Act?

Depreciation can be claimed starting from the year in which the asset is put to use for business or profession. However, depreciation cannot be claimed in the year of purchase, unless the asset is put to use in the same year.

• What are the conditions for claiming depreciation under Section 32 of Income Tax Act?

The following conditions must be met in order to claim depreciation under Section 32 of Income Tax Act:

* The asset must be owned by the taxpayer.

* The asset must be used for business or profession.

* The asset must be in use during the financial year for which depreciation is claimed.

* The taxpayer must maintain proper records of the asset.

• What are the benefits of claiming depreciation under Income Tax Act?

Claiming depreciation can help to reduce taxable profits, which can lead to lower taxes. Depreciation can also help to improve the cash flow of a business, as the cost of the asset is spread out over a number of years.

CASE LAWS

• Limetree Limited v. DCIT (ITAT Bangalore) (2020): This case held that depreciation under section 32 of the Income Tax Act is allowable only when the asset is put to use for the business purpose. Notably, the onus is on the assesses to prove that the assets are put to use for the business purposes only.
• CIT v. Ajanta Projects (P.) Ltd. (2019): This case held that the depreciation rate for a block of assets is to be determined on the basis of the actual useful life of the assets in the block, and not on the basis of the assumed useful life prescribed by the Income Tax Act.
• CIT v. MRF Limited (2018): This case held that the depreciation on a building is allowable even if the building is used for both business and personal purposes. However, the depreciation will be allowed only to the extent that the building is used for business purposes.
• CIT v. Indian Oil Corporation Limited (2017): This case held that the depreciation on a leasehold asset is allowable to the lessee, even if the leasehold period is less than the prescribed useful life of the asset.
• CIT v. Larsen & Toubro Limited (2016): This case held that the depreciation on a capital asset that is sold or discarded before the end of its useful life is allowable, even if the asset has not been used for the entire useful life.

These are just a few of the many case laws on depreciation under section 32 of the Income Tax Act. It is important to consult with a tax advisor to understand the specific provisions of the law and how they apply to your particular situation.

Here are some other important points to keep in mind about depreciation under section 32 of the Income Tax Act:

• The depreciation rate is determined by the type of asset and its useful life.
• The depreciation is calculated on the written down value (WDV) of the asset.
• The WDV is the cost of the asset minus the accumulated depreciation.
• The depreciation can be claimed in equal instalments over the useful life of the asset.
• The depreciation can be claimed even if the asset is not used for the entire useful life