ACTUAL COST OF ASSET FOR CALCULATION OF DEPRECIATION
ACTUAL COST OF ASSET FOR CALCULATION OF DEPRECIATION
ACTUAL COST/ COST OF ACQUISITION OF ASSET ACQUIRED (SECTION 43(1))
ACTUAL COST AS PER SECTION 43(1)
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Particulars |
Amount (in Rs.) |
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Cost of Asset (Purchase Price) |
xxx |
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Add: Installation charges |
xxx |
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Add: Transportation expenses for test |
xxx |
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Add: Trial run/ Test run expenses |
xxx |
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Add: Taxes & Duties (if ITC is not available) |
xxx |
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Add: Interest on loan taken for acquisition of asset (upto the date of asset put to use) |
xxx |
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xxx |
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Less: Amount received on sale of trial run product |
xxx |
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Less: Subsidy/ Government Grants received for acquisition of assets |
xxx |
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Actual Cost |
xxx |
Note: If assessee occurs any expenses for acquisition of any asset & payment made to single person in a single day, otherwise than by an a/c payee cheque/ Demand Draft or through any other electronic clearing service exceeds Rs. 10,000, such expenditure shall not form part of actual cost of such asset.
EXPLANATION TO SECTION 43(1): ACTUAL COST IN CERTAIN CASES
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S.NO |
CASE |
ACTUAL COST |
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Asset previously used for Scientific Research brought into regular business |
Actual Cost = NIL (because deduction is already claimed u/s 35). |
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Stock converted into capital asset and used for business or profession |
Fair market Value on the date of conversion. |
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Asset acquired by way of gift/ will/ inheritance |
Actual cost to the previous owner less depreciation already allowed to him. |
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Asset acquired with an intention to claim higher depreciation |
Amount determined by the Assessing Officer with the approval of Joint Commissioner (JC) (Normally AO takes Fair Market Value of such assets). |
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Re-acquisition of asset sold |
Lower of: -
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Asset Purchased & leased back to the same person |
Written down value of the previous owner (Lessee). |
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Building was used for other purpose now brought into business. |
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Capital Asset transferred by holding company to 100% subsidiary company or 100% subsidiary company to holding company |
Cost/ opening written down value to the transferor company. |
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Transferred by Amalgamating company to Amalgamated company |
Cost/ opening written down value to the amalgamating company. |
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Transferred by Demerged company to Resulting company |
Cost/ written down value (at the time of demerger) to demerged company. |
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Asset acquired out of Borrowed Funds |
Interest upto first put to use form part of Actual Cost. |
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Gst, Custom duty, etc. |
Duty in respect of which ITC claim not allowed forming part of actual cost. |
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Government grant/ Subsidy |
If related to any asset, then reduce from actual cost. |
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Asset brought into India by Non Resident for use in his Business or Profession |
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Any capital asset acquired under corporatization of Recognized Stock Exchanges (AOP/ BOI to company) |
Cost/ Written down value of AOP/ BOI |
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Actual cost allowed as deduction u/s 35AD and capital asset transferred to non specified business after 8 Years from the year of acquisition or transfer by way of transaction referred in section 47 |
Actual cost of transferee shall always be Nil. |
Explanation 7 of Section 43(6): In cases where assessee has partly income from Business and partly from Agriculture, for the purpose of computing written down value, the depreciation shall be computed as if the entire income of the assessee is from PGBP. The depreciation so computed shall be deemed to have been “actually allowed” to the assessee.
Eg: Mr. Kamran engaged in Growing & Manufacturing of Tea in this case only 40% income is taxable under PGBP. If the turnover is Rs. 20 lakhs, the depreciation is Rs. 1 lakhs and other expenses are Rs. 4 lakhs, then the income would be Rs. 15 Lakhs. PGBP would be Rs. 6 lakhs (being 40% of Rs. 15 lakhs). As per earlier court decisions, only the deprecation “actually allowed” i.e. Rs. 40,000, being Rs. 40% of Rs. 1 Lakh, has to be deducted to arrive at the Written down value but as per this explanation total Rs.1 lakh shall be reduce to compute WDV.
Example:
Sai Ltd has a block of assets carrying 15% rate of depreciation, whose written down value on 01.04.2024 was Rs. 40 lakhs. It Purchased another asset (second hand plant and machinery) of the same block on 01/11/2024 for Rs. 14.40 lakhs and put to use on same day. Sai Ltd. was amalgamated with Shirdi Ltd. with effect from 01.01.2025.
You are required to compute the depreciation allowable to sai ltd. & Shirdi ltd. for the previous year ended on 31.03.2025 assuming that the assets were transferred to Shirdi ltd at Rs. 60 lakhs.
Statement of computation depreciation allowable to Sai Ltd. & Shirdi Ltd.
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Particulars |
Amount (in Rs.) |
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Written down value (WDV) as on 01.04.2023 |
40,00,000 |
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Addition during the year (used for less than 180 days) |
14,40,000 |
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Total |
54,40,000 |
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Depreciation on Rs. 40,00,000 @ 15% |
6,00,000 |
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Deprecaition on Rs. 14,40,000 @ 7.5% |
1,08,000 |
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Total Depreciation for the year |
7,08,000 |
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Apportionment between two companies:
6,00,000 * 275/366 1,08,000 * 61/152 |
4,50,820 43,342 |
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4,94,162 |
6,00,000 * 91/366 1,08,000 * 91/152 |
1,49,180 64,658 |
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2,13,838 |
Notes:
- The aggregate deduction, in respect of depreciation allowable to the amalgamating company and the amalgamated company in the case of amalgamation shall not exceed in any case, the deduction calculated at the prescribed rates as if the amalgamation had not taken place. Such deductions shall be apportioned between the amalgamating company and the amalgamated company in the ratio of the number of days for which such assets were used by them.
- The Price at which the assets were transferred, i.e. Rs. 60 lakhs has no implications in computing eligible depreciation.
