Section 32(1) of the Income Tax Act, 1961 allows an additional depreciation of 20% of the actual cost of new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assesses who is engaged in the business of manufacture or production of any article or thing.

The additional depreciation is allowed in the year in which the asset is acquired and installed. In Income Tax Act The asset must be put to use for the purpose of the business or profession in the same year.

The additional depreciation is computed on the actual cost of the asset, which           includes the purchase price, freight, installation charges, etc. The actual cost is reduced by any amount claimed as a deduction under section 35AD (capital expenditure on scientific research) or section 35ABA the Income Tax Act (capital expenditure on new machinery or plant for manufacture or production of new products).

• The additional depreciation is allowed in addition to the normal depreciation allowed under section 32(1) the Income Tax Act. The normal depreciation is calculated on the written down value of the asset.
• For example, if an assesses acquires a new machine for Rs. 10 lakhs in April 2023 and installs it in the same month, the additional depreciation for the year 2023-24 will be Rs. 2 lakhs (20% of Rs. 10 lakhs). The normal depreciation for the year 2023-24 will be calculated on the written down value of the machine, which will be Rs. 10 lakhs – Rs. 2 lakhs = Rs. 8 lakhs.
• The additional depreciation is a one-time deduction and is not allowed in subsequent years. However, if the asset is sold or discarded before the end of its useful life, the assesses can claim a balancing charge on the sale proceeds or the scrap value of the asset.

          Depreciation under section 32(1) the Income Tax Act

• The additional depreciation is allowed only for new machinery or plant.
• The asset must be acquired and installed after March 31, 2005.
• The assesses must be engaged in the business of manufacture or production

           Of any articles or things.

• The asset must be put to use for the purpose of the business or profession in

            The same years.

• The additional depreciation is allowed in addition to the normal depreciation allowed under section 32(1) the Income Tax Act
• The additional depreciation is a one-time deduction and is not allowed in subsequent years.

EXAMPLES: {Computation of additional depreciation}

• Bangalore: An assesses in Bangalore who is engaged in the business of manufacturing textiles can claim depreciation on the cost of new machinery or plant acquired and installed after March 31, 2005. The additional depreciation allowed under section 32(1) the Income Tax Act) is 20% of the actual cost of the asset.
• Maharashtra: An assesses in Maharashtra who is engaged in the business of mining can claim depreciation on the cost of new machinery or plant acquired and installed after March 31, 2005. The additional depreciation allowed under section 32(1) the Income Tax Actis 35% of the actual cost of the asset.
• Gujarat: An assesses in Gujarat who is engaged in the business of power generation can claim depreciation on the cost of new machinery or plant acquired and installed after March 31, 2005. The additional depreciation allowed under section 32(1) the Income Tax Act(iia) is 50% of the actual cost of the asset.

CASE LAWS :{ Computation of additional depreciation}

Gwalior Rayon Silk Manufacturing Co. Ltd. v. CIT (1992) 193 ITR 297 (SC): This case held that the assesses was entitled to depreciation on machinery used for testing purposes, even though the machinery was not used for production.

Mysore Minerals Ltd. v. CIT (1999) 239 ITR 357 (SC): This case held that the assesses was entitled to depreciation on buildings used for the purpose of storing finished goods, even though the buildings were not used for production.

CIT v. Anand Theatres (2000) 245 ITR 353 (SC): This case held that the assesses was entitled to depreciation on buildings used for the purpose of exhibition of films, even though the buildings were not used for production.

CIT v. TVS Electronics Ltd. (2005) 278 ITR 279 (SC): This case held that the assesses was entitled to depreciation on buildings used for the purpose of research and development, even though the buildings were not used for production.

CIT v. Bharat Heavy Electricals Ltd. (2011) 331 ITR 261 (SC): This case held that the assesses was entitled to depreciation on buildings used for the purpose of training, even though the buildings were not used for production.

FAQ QUESTIONS :{ Computation of additional depreciation}

What are the assets that are eligible for depreciation under section 32(1) the Income Tax Act?

The following assets are eligible for depreciation under section 32(1) the Income Tax Act:

• Tangible assets, such as buildings, furniture, plant and machinery.
• Intangible assets, such as goodwill, 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 The rules prescribe different rates of depreciation for different types of assets such as buildings, plant and machinery, vehicles, etc. The rate of depreciation is calculated based on the useful life of the asset.

How is depreciation calculatedUnder Section 32 of Income Tax Act?

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 is calculated for each year of the asset’s useful life.

What are the limitations on depreciationUnder Section 32 of Income Tax Act?

There are a few limitations on depreciation, under Income Tax Actsuch as:

• The depreciation cannot exceed the actual cost of the asset.
• The depreciation cannot be claimed for assets that are not used for business or profession.
• The depreciation cannot be claimed for assets that are not put to use for the purpose of the business or profession in the same year in which they are acquired.