Depreciation allows you to spread the cost of a capital asset over its useful life. Under the Income Tax Act, this deduction is primarily governed by Section 32, and the most common method used is the Written Down Value (WDV) method. Here’s a straightforward guide on how to calculate it: Step 1: DetRead more
Depreciation allows you to spread the cost of a capital asset over its useful life. Under the Income Tax Act, this deduction is primarily governed by Section 32, and the most common method used is the Written Down Value (WDV) method. Here’s a straightforward guide on how to calculate it:
Step 1: Determine the Cost of Acquisition
Starting Point: Begin with the purchase price of the asset. Add any incidental expenses (like installation, transportation, and registration fees) that are directly attributable to acquiring the asset. This gives you the asset’s total cost.
Step 2: Classify the Asset
Type of Asset: Assets are generally classified as tangible (buildings, machinery, vehicles) or intangible (patents, copyrights).
Depreciable vs. Non-Depreciable: Note that certain assets, such as land and goodwill (as per current provisions), are not eligible for depreciation.
Step 3: Choose the Appropriate Depreciation Method
Written Down Value (WDV) Method: Under this method, depreciation is calculated on the remaining value of the asset after deducting depreciation claimed in previous years.
Calculation for the Year:
Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate\text{Depreciation} = (\text{Cost of Asset} – \text{Accumulated Depreciation}) \times \text{Prescribed Rate}Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate
Straight-Line Method (SLM): In certain cases (like some power generation undertakings), the Straight-Line Method is applicable, where depreciation is spread evenly over the asset’s useful life.
Step 4: Apply the Prescribed Depreciation Rate
Rate Determination: The Income Tax Act specifies different rates for various types of assets. For example, buildings, machinery, and computers each have their own rates.
Example: If a machine costs ₹10 lakh and the prescribed rate is 15% under the WDV method, the first year’s depreciation would be:
When companies undergo a merger or acquisition, the treatment of depreciation on transferred assets is governed by specific provisions of the Income Tax Act. The key objective is to ensure that the tax benefit of depreciation already claimed by the transferor is preserved for the transferee, subjectRead more
When companies undergo a merger or acquisition, the treatment of depreciation on transferred assets is governed by specific provisions of the Income Tax Act. The key objective is to ensure that the tax benefit of depreciation already claimed by the transferor is preserved for the transferee, subject to certain conditions.
Key Points to Consider:
Carry Forward of Unabsorbed Depreciation: Under the provisions applicable to amalgamations and demergers, any unabsorbed depreciation on assets of the transferor can be carried forward by the acquiring company. This means that if a company has already claimed depreciation in previous years, that benefit can continue in the new entity, provided the required conditions are met.
Continuity Conditions: For the depreciation benefit to be transferred, the following conditions must generally be satisfied:
Continuity of Business: The acquiring company should continue the same business operations as the transferor.
Shareholding Continuity: There is often a requirement that a certain percentage (commonly 50% or more) of the transferor’s share capital or voting power is maintained by the acquiring company.
Basis of Depreciation for Transferred Assets: The cost of the asset in the hands of the acquiring company is typically taken as the cost in the hands of the transferor, adjusted for any unabsorbed depreciation already claimed. This ensures that the depreciation deductions for future years are computed on the written-down value carried forward from the transferor’s books.
Practical Impact:
If Conditions Are Met: The acquiring company continues to claim depreciation on the transferred assets, and the benefit of unabsorbed depreciation is preserved. This helps in maintaining a lower taxable income post-merger or acquisition.
If Conditions Are Not Met: If the continuity conditions fail, the depreciation claimed by the transferor may not be carried forward. In such cases, the acquiring company might have to start fresh without that tax benefit, potentially resulting in higher taxable profits.
Under the Income Tax Act, there is an important rule regarding depreciation: an asset must be used for at least 180 days during a financial year to qualify for any depreciation deduction. What Does This Mean? Minimum Usage Requirement:If an asset is in use for less than 180 days in the year, you canRead more
Under the Income Tax Act, there is an important rule regarding depreciation: an asset must be used for at least 180 days during a financial year to qualify for any depreciation deduction.
What Does This Mean?
Minimum Usage Requirement: If an asset is in use for less than 180 days in the year, you cannot claim any depreciation on it. The rationale is that the asset hasn’t been used long enough during the year to justify an expense deduction for wear and tear.
No Pro-Rata Benefit: Unlike assets used for a substantial part of the year—where you might calculate a proportionate depreciation—the law simply disallows any depreciation if the 180-day threshold isn’t met.
Example to Illustrate: Suppose you purchase new machinery in the middle of the year, and it is only used for 150 days. In this case, because the asset falls short of the 180-day minimum usage, you would not be allowed to claim depreciation for that machinery for the financial year.
Bottom Line: For an asset to be eligible for a depreciation deduction, it must be in use for at least 180 days during the year. If it’s used for less than that, the Income Tax Act does not permit you to claim any depreciation on
When a company invests in new plant and machinery, particularly for manufacturing purposes, it may be eligible for an extra deduction known as additional depreciation. This benefit is designed to encourage capital investment in productive assets. Step-by-Step Process 1. Determine the Cost of the NewRead more
When a company invests in new plant and machinery, particularly for manufacturing purposes, it may be eligible for an extra deduction known as additional depreciation. This benefit is designed to encourage capital investment in productive assets.
Step-by-Step Process
1. Determine the Cost of the New Asset:
Actual Cost: Start with the purchase price and add all incidental expenses (like installation, transportation, and other directly attributable costs).
Exclusions: Land costs are not considered.
2. Check Eligibility:
New and Unused: The asset must be newly acquired and should not be a second-hand purchase.
Business Use: It must be used wholly and exclusively for the purpose of manufacturing or the eligible business activity.
Manufacturing Sector: Additional depreciation is typically available only for assets used in manufacturing.
3. Apply the Additional Depreciation Rate:
The rate for additional depreciation is generally 15% of the cost of the asset.
Computation:
Additional Depreciation=Cost of New Asset×15%\text{Additional Depreciation} = \text{Cost of New Asset} \times 15\%Additional Depreciation=Cost of New Asset×15%
4. Claim the Deduction:
This extra deduction is allowed in the year the asset is put to use.
It is claimed in addition to the normal depreciation computed under the usual rates prescribed in Section 32.
Example Illustration
Imagine a manufacturing company buys new machinery at a cost of ₹10 lakh (inclusive of all incidental expenses).
Normal Depreciation: (Calculated separately as per the prescribed rates under Section 32.)
When it comes to claiming additional depreciation, the Income Tax Act provides an incentive for businesses to invest in new assets by allowing an extra deduction on new plant and machinery. However, this benefit isn’t automatic—there are several situations where additional depreciation will not be aRead more
When it comes to claiming additional depreciation, the Income Tax Act provides an incentive for businesses to invest in new assets by allowing an extra deduction on new plant and machinery. However, this benefit isn’t automatic—there are several situations where additional depreciation will not be allowed. Here’s what you need to know:
1. Asset Not Being “New”
Eligible Assets: Additional depreciation is available only on newly purchased or wholly newly constructed assets.
Not Allowed: If you acquire a second-hand asset, even if it is used fully for business, you cannot claim additional depreciation on it.
2. Partial or Non-Business Use
Full Business Use Required: To claim additional depreciation, the asset must be used wholly and exclusively for your business.
Disallowed for Mixed Use: If the asset is used partly for personal purposes or for non-business activities, the additional benefit is disallowed for the non-business portion.
3. Delayed or Non-Commencement of Use
Timely Use: The asset should be put to use within the prescribed time frame after acquisition.
Not Allowed: If the asset isn’t utilized for business within that period, the benefit of additional depreciation may be lost.
4. Acquisition from Certain Sources
Direct Purchase Requirement: Additional depreciation is generally available only when the asset is purchased by the taxpayer.
Restrictions on Related-Party Transactions: If the asset is acquired from a related party at a price that is not at arm’s length, additional depreciation might be restricted.
5. Special Cases – Amalgamation/Demerger
Structural Changes: In cases of amalgamation or demerger, special provisions govern the carry-forward of losses and depreciation.
Result: The usual benefit of additional depreciation may not apply unless the continuity conditions are met.
When it comes to determining the “actual cost” of an asset for tax purposes, the Income Tax Act, 1961 requires you to consider all the expenses incurred in acquiring and putting the asset to use. Here’s a step-by-step guide: Step 1: Identify the Base Cost For Purchased Assets:This is the price you aRead more
When it comes to determining the “actual cost” of an asset for tax purposes, the Income Tax Act, 1961 requires you to consider all the expenses incurred in acquiring and putting the asset to use. Here’s a step-by-step guide:
Step 1: Identify the Base Cost
For Purchased Assets: This is the price you actually paid for the asset.
For Gifts or Inherited Assets: The actual cost is usually the market value on the date of transfer or as provided by Section 48 of the Act.
Step 2: Add Incidental Expenses
Include all expenses directly attributable to acquiring the asset, such as:
Stamp duty and registration fees
Brokerage and legal fees
Any other charges incurred in the acquisition process
Step 3: Include Capital Improvements
If you have incurred expenses on improvements or renovations that add to the asset’s value (and these are capital in nature), include these in your cost calculation.
Step 4: Determine the Total Actual Cost
Sum Up: The actual cost is the aggregate of the base cost, incidental expenses, and capital improvements.
This figure represents the total expenditure made to bring the asset into a usable condition.
Step 5: Adjust for Inflation (if Applicable)
Indexation Benefit: For long-term capital gains purposes, you may apply the Cost Inflation Index (CII) to the actual cost. However, note that indexation is applied after calculating the actual cost.
Key Takeaways
Actual Cost = Purchase Price (or Market Value) + Incidental Expenses + Capital Improvements.
For Long-Term Assets: Use indexation on the actual cost to adjust for inflation when computing capital gains.
Documentation: Maintain all receipts and documents to support each component of the cost.
By carefully calculating these components, you can accurately determine the actual cost of your asset as required by the Income Tax Act. This helps ensure that your capital gains calculations are precise and that you optimize your tax benefits.
If your business no longer requires GST registration—perhaps because you’ve ceased operations or your turnover falls below the threshold—you can surrender your GST number. Here’s a clear, step-by-step process: 1. Prepare for Surrender Clear Pending Compliance:Ensure that all GST returns are filed anRead more
If your business no longer requires GST registration—perhaps because you’ve ceased operations or your turnover falls below the threshold—you can surrender your GST number. Here’s a clear, step-by-step process:
1. Prepare for Surrender
Clear Pending Compliance: Ensure that all GST returns are filed and any outstanding tax or interest liabilities are settled. This is crucial before initiating the surrender process.
Review Your Business Status: Confirm that your business no longer meets the mandatory registration criteria.
2. Log In to the GST Portal
Access Your Account: Use your credentials to log in to the official GST portal. This is where you’ll initiate the surrender process.
3. Submit the Cancellation Application
Find the Cancellation Option: In the portal’s dashboard, look for the option to “Cancel/ Surrender Registration”.
Fill Out the Form: Complete the required form (commonly known as GST REG-16). Provide accurate details about your business and the reason for surrendering your GST registration.
Upload Supporting Documents: Attach any necessary documentation that confirms your business has either ceased operations or no longer meets the criteria for registration.
4. Submit and Wait for Processing
Application Submission: Once the form is completed and all documents are attached, submit your application.
Review by the Authorities: The jurisdictional officer will review your request. If everything is in order, your GST registration will be canceled.
Confirmation: You’ll receive a notification from the GST department confirming the cancellation of your GST number.
5. Post-Cancellation
Keep Records: Retain a copy of the cancellation confirmation and related documents for your records.
Update Your Business Practices: Ensure that you update your invoicing and accounting systems to reflect the change.
The GST Department may cancel a GST registration if a taxpayer fails to comply with certain requirements. Here are the main conditions under which cancellation can occur: Non-Filing of Returns:If a registered taxpayer fails to file GST returns for a continuous period (usually six months), the departRead more
The GST Department may cancel a GST registration if a taxpayer fails to comply with certain requirements. Here are the main conditions under which cancellation can occur:
Non-Filing of Returns: If a registered taxpayer fails to file GST returns for a continuous period (usually six months), the department may cancel the registration. This is to ensure active compliance—if you aren’t filing returns, your registration might be considered dormant.
Failure to Comply with Corrective Notices: When the department issues notices for discrepancies or non-compliance (for example, incorrect information in the registration application) and the taxpayer fails to respond or rectify the issues, cancellation can be initiated.
Discontinuation of Business: If there is clear evidence that the business has ceased operations or the taxpayer’s turnover remains consistently below the prescribed threshold, the department may cancel the registration.
False or Misleading Information: If the information provided during registration is found to be false or misleading, the GST registration may be cancelled. This ensures the integrity of the registration process.
Other Non-Compliance Issues: Any other significant non-compliance with GST provisions—for example, failure to maintain proper records or adhere to statutory requirements—can also lead to cancellation.
nder the Income Tax Act, 1961, a “capital asset” is broadly defined in Section 2(14). It includes property of any kind held by an assessee, whether or not connected with their business or profession. However, this definition comes with several exclusions. Key Exclusion: Stock-in-Trade Stock-in-TradeRead more
nder the Income Tax Act, 1961, a “capital asset” is broadly defined in Section 2(14). It includes property of any kind held by an assessee, whether or not connected with their business or profession. However, this definition comes with several exclusions.
Key Exclusion: Stock-in-Trade
Stock-in-Trade Is Not a Capital Asset: Items held for the purpose of sale in the ordinary course of business—such as inventory, raw materials, or finished goods—are classified as stock-in-trade and do not fall under the definition of capital assets.
Why This Matters: Capital gains on the sale of capital assets are taxed differently from business income. Since stock-in-trade is part of normal business inventory, any profit from its sale is treated as business income, not as capital gains.
In Summary
Capital Asset: Defined under Section 2(14) of the Income Tax Act and includes property held for investment or personal use.
Exclusion: Stock-in-trade is excluded from the definition of capital assets because it is part of the inventory used in the normal course of business.
This distinction is crucial for determining the applicable tax treatment on the sale of assets. For capital assets, capital gains tax rules apply, while profits from stock-in-trade are taxed as business income.
Under the Income Tax Act, 1961, agricultural income is exempt from tax if it is derived from land used for agricultural purposes in a rural area. This means that if you sell agricultural land that qualifies as rural, any capital gains from the sale are generally not taxable. Key Points to Consider ERead more
Under the Income Tax Act, 1961, agricultural income is exempt from tax if it is derived from land used for agricultural purposes in a rural area. This means that if you sell agricultural land that qualifies as rural, any capital gains from the sale are generally not taxable.
Key Points to Consider
Exemption Basis: The exemption is provided under Section 10(1) of the Income Tax Act. If the agricultural land meets the criteria (used for agriculture and situated in a rural area), the gains on its sale are not included in taxable income.
Definition of Rural Agricultural Land: To qualify as rural, the land should be located outside the jurisdiction of a municipality or a cantonment board. Proper land use and title documents are necessary to confirm its status.
Documentation: Keep all relevant documents, such as land records and usage certificates, to support the claim that the property is agricultural land in a rural area.
Conclusion
If your agricultural land qualifies as rural under the criteria set out in Section 10(1) of the Income Tax Act, any capital gains on its sale will be tax-exempt. This benefit is aimed at supporting the agricultural sector and rural development.
How depreciation as per Income Tax is calculated?
Depreciation allows you to spread the cost of a capital asset over its useful life. Under the Income Tax Act, this deduction is primarily governed by Section 32, and the most common method used is the Written Down Value (WDV) method. Here’s a straightforward guide on how to calculate it: Step 1: DetRead more
Depreciation allows you to spread the cost of a capital asset over its useful life. Under the Income Tax Act, this deduction is primarily governed by Section 32, and the most common method used is the Written Down Value (WDV) method. Here’s a straightforward guide on how to calculate it:
Step 1: Determine the Cost of Acquisition
Starting Point:
Begin with the purchase price of the asset. Add any incidental expenses (like installation, transportation, and registration fees) that are directly attributable to acquiring the asset. This gives you the asset’s total cost.
Step 2: Classify the Asset
Type of Asset:
Assets are generally classified as tangible (buildings, machinery, vehicles) or intangible (patents, copyrights).
Depreciable vs. Non-Depreciable:
Note that certain assets, such as land and goodwill (as per current provisions), are not eligible for depreciation.
Step 3: Choose the Appropriate Depreciation Method
Written Down Value (WDV) Method:
Under this method, depreciation is calculated on the remaining value of the asset after deducting depreciation claimed in previous years.
Calculation for the Year:
Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate\text{Depreciation} = (\text{Cost of Asset} – \text{Accumulated Depreciation}) \times \text{Prescribed Rate}Depreciation=(Cost of Asset−Accumulated Depreciation)×Prescribed Rate
Straight-Line Method (SLM):
In certain cases (like some power generation undertakings), the Straight-Line Method is applicable, where depreciation is spread evenly over the asset’s useful life.
Step 4: Apply the Prescribed Depreciation Rate
Rate Determination:
The Income Tax Act specifies different rates for various types of assets. For example, buildings, machinery, and computers each have their own rates.
Example:
If a machine costs ₹10 lakh and the prescribed rate is 15% under the WDV method, the first year’s depreciation would be:
₹10,00,000×15%=₹1,50,000₹10,00,000 \times 15\% = ₹1,50,000₹10,00,000×15%=₹1,50,000
The Written Down Value at the end of the first year would then be:
₹10,00,000−₹1,50,000=₹8,50,000₹10,00,000 – ₹1,50,000 = ₹8,50,000₹10,00,000−₹1,50,000=₹8,50,000
In the second year, you’d calculate depreciation on ₹8,50,000 using the same rate.
Step 5: Record and Carry Forward
Documentation:
Maintain detailed records of the asset’s cost, the depreciation claimed each year, and the resulting Written Down Value.
Continuity:
These records ensure that the depreciation is correctly calculated over the asset’s useful life and help in future tax assessments.
See less
What is the provision of deduction of depreciation in case of merger and acquisition?
When companies undergo a merger or acquisition, the treatment of depreciation on transferred assets is governed by specific provisions of the Income Tax Act. The key objective is to ensure that the tax benefit of depreciation already claimed by the transferor is preserved for the transferee, subjectRead more
When companies undergo a merger or acquisition, the treatment of depreciation on transferred assets is governed by specific provisions of the Income Tax Act. The key objective is to ensure that the tax benefit of depreciation already claimed by the transferor is preserved for the transferee, subject to certain conditions.
Key Points to Consider:
Carry Forward of Unabsorbed Depreciation:
Under the provisions applicable to amalgamations and demergers, any unabsorbed depreciation on assets of the transferor can be carried forward by the acquiring company. This means that if a company has already claimed depreciation in previous years, that benefit can continue in the new entity, provided the required conditions are met.
Continuity Conditions:
For the depreciation benefit to be transferred, the following conditions must generally be satisfied:
Continuity of Business: The acquiring company should continue the same business operations as the transferor.
Shareholding Continuity: There is often a requirement that a certain percentage (commonly 50% or more) of the transferor’s share capital or voting power is maintained by the acquiring company.
Basis of Depreciation for Transferred Assets:
The cost of the asset in the hands of the acquiring company is typically taken as the cost in the hands of the transferor, adjusted for any unabsorbed depreciation already claimed. This ensures that the depreciation deductions for future years are computed on the written-down value carried forward from the transferor’s books.
Practical Impact:
-
-
See lessIf Conditions Are Met:
The acquiring company continues to claim depreciation on the transferred assets, and the benefit of unabsorbed depreciation is preserved. This helps in maintaining a lower taxable income post-merger or acquisition.
If Conditions Are Not Met:
If the continuity conditions fail, the depreciation claimed by the transferor may not be carried forward. In such cases, the acquiring company might have to start fresh without that tax benefit, potentially resulting in higher taxable profits.
How much deduction of depreciation is allowed as per Income Tax Act, if the assets is used less than 180 days?
Under the Income Tax Act, there is an important rule regarding depreciation: an asset must be used for at least 180 days during a financial year to qualify for any depreciation deduction. What Does This Mean? Minimum Usage Requirement:If an asset is in use for less than 180 days in the year, you canRead more
Under the Income Tax Act, there is an important rule regarding depreciation: an asset must be used for at least 180 days during a financial year to qualify for any depreciation deduction.
What Does This Mean?
Minimum Usage Requirement:
If an asset is in use for less than 180 days in the year, you cannot claim any depreciation on it. The rationale is that the asset hasn’t been used long enough during the year to justify an expense deduction for wear and tear.
No Pro-Rata Benefit:
Unlike assets used for a substantial part of the year—where you might calculate a proportionate depreciation—the law simply disallows any depreciation if the 180-day threshold isn’t met.
Example to Illustrate:
Suppose you purchase new machinery in the middle of the year, and it is only used for 150 days. In this case, because the asset falls short of the 180-day minimum usage, you would not be allowed to claim depreciation for that machinery for the financial year.
Bottom Line:
See lessFor an asset to be eligible for a depreciation deduction, it must be in use for at least 180 days during the year. If it’s used for less than that, the Income Tax Act does not permit you to claim any depreciation on
How to compute additional depreciation as per Income Tax Act and what will be the rate of depreciation?
When a company invests in new plant and machinery, particularly for manufacturing purposes, it may be eligible for an extra deduction known as additional depreciation. This benefit is designed to encourage capital investment in productive assets. Step-by-Step Process 1. Determine the Cost of the NewRead more
When a company invests in new plant and machinery, particularly for manufacturing purposes, it may be eligible for an extra deduction known as additional depreciation. This benefit is designed to encourage capital investment in productive assets.
Step-by-Step Process
1. Determine the Cost of the New Asset:
Actual Cost: Start with the purchase price and add all incidental expenses (like installation, transportation, and other directly attributable costs).
Exclusions: Land costs are not considered.
2. Check Eligibility:
New and Unused: The asset must be newly acquired and should not be a second-hand purchase.
Business Use: It must be used wholly and exclusively for the purpose of manufacturing or the eligible business activity.
Manufacturing Sector: Additional depreciation is typically available only for assets used in manufacturing.
3. Apply the Additional Depreciation Rate:
The rate for additional depreciation is generally 15% of the cost of the asset.
Computation:
Additional Depreciation=Cost of New Asset×15%\text{Additional Depreciation} = \text{Cost of New Asset} \times 15\%Additional Depreciation=Cost of New Asset×15%
4. Claim the Deduction:
This extra deduction is allowed in the year the asset is put to use.
It is claimed in addition to the normal depreciation computed under the usual rates prescribed in Section 32.
Example Illustration
Imagine a manufacturing company buys new machinery at a cost of ₹10 lakh (inclusive of all incidental expenses).
Normal Depreciation: (Calculated separately as per the prescribed rates under Section 32.)
Additional Depreciation:
₹10 lakh×15%=₹1.5 lakh₹10\, \text{lakh} \times 15\% = ₹1.5\, \text{lakh}₹10lakh×15%=₹1.5lakh
This ₹1.5 lakh is deducted as an extra allowance, reducing the company’s taxable income.
Key Points to Remember
-
-
-
See lessExclusive Use: Additional depreciation is available only if the asset is used entirely for the eligible business activity.
Not for All Sectors: It primarily applies to the manufacturing sector; service-oriented businesses usually do not qualify.
Documentation: Maintain proper records of the purchase, installation, and usage of the asset to substantiate your claim.
What are the conditions wherein deduction of additional depreciation is not allowed as per Income Tax Act?
When it comes to claiming additional depreciation, the Income Tax Act provides an incentive for businesses to invest in new assets by allowing an extra deduction on new plant and machinery. However, this benefit isn’t automatic—there are several situations where additional depreciation will not be aRead more
When it comes to claiming additional depreciation, the Income Tax Act provides an incentive for businesses to invest in new assets by allowing an extra deduction on new plant and machinery. However, this benefit isn’t automatic—there are several situations where additional depreciation will not be allowed. Here’s what you need to know:
1. Asset Not Being “New”
Eligible Assets:
Additional depreciation is available only on newly purchased or wholly newly constructed assets.
Not Allowed:
If you acquire a second-hand asset, even if it is used fully for business, you cannot claim additional depreciation on it.
2. Partial or Non-Business Use
Full Business Use Required:
To claim additional depreciation, the asset must be used wholly and exclusively for your business.
Disallowed for Mixed Use:
If the asset is used partly for personal purposes or for non-business activities, the additional benefit is disallowed for the non-business portion.
3. Delayed or Non-Commencement of Use
Timely Use:
The asset should be put to use within the prescribed time frame after acquisition.
Not Allowed:
If the asset isn’t utilized for business within that period, the benefit of additional depreciation may be lost.
4. Acquisition from Certain Sources
Direct Purchase Requirement:
Additional depreciation is generally available only when the asset is purchased by the taxpayer.
Restrictions on Related-Party Transactions:
If the asset is acquired from a related party at a price that is not at arm’s length, additional depreciation might be restricted.
5. Special Cases – Amalgamation/Demerger
-
-
See lessStructural Changes:
In cases of amalgamation or demerger, special provisions govern the carry-forward of losses and depreciation.
Result:
The usual benefit of additional depreciation may not apply unless the continuity conditions are met.
How to calculate actual cost of assets as per Income Tax Act?
When it comes to determining the “actual cost” of an asset for tax purposes, the Income Tax Act, 1961 requires you to consider all the expenses incurred in acquiring and putting the asset to use. Here’s a step-by-step guide: Step 1: Identify the Base Cost For Purchased Assets:This is the price you aRead more
When it comes to determining the “actual cost” of an asset for tax purposes, the Income Tax Act, 1961 requires you to consider all the expenses incurred in acquiring and putting the asset to use. Here’s a step-by-step guide:
Step 1: Identify the Base Cost
For Purchased Assets:
This is the price you actually paid for the asset.
For Gifts or Inherited Assets:
The actual cost is usually the market value on the date of transfer or as provided by Section 48 of the Act.
Step 2: Add Incidental Expenses
Include all expenses directly attributable to acquiring the asset, such as:
Stamp duty and registration fees
Brokerage and legal fees
Any other charges incurred in the acquisition process
Step 3: Include Capital Improvements
If you have incurred expenses on improvements or renovations that add to the asset’s value (and these are capital in nature), include these in your cost calculation.
Step 4: Determine the Total Actual Cost
Sum Up:
The actual cost is the aggregate of the base cost, incidental expenses, and capital improvements.
This figure represents the total expenditure made to bring the asset into a usable condition.
Step 5: Adjust for Inflation (if Applicable)
Indexation Benefit:
For long-term capital gains purposes, you may apply the Cost Inflation Index (CII) to the actual cost. However, note that indexation is applied after calculating the actual cost.
Key Takeaways
Actual Cost = Purchase Price (or Market Value) + Incidental Expenses + Capital Improvements.
For Long-Term Assets:
Use indexation on the actual cost to adjust for inflation when computing capital gains.
Documentation:
Maintain all receipts and documents to support each component of the cost.
By carefully calculating these components, you can accurately determine the actual cost of your asset as required by the Income Tax Act. This helps ensure that your capital gains calculations are precise and that you optimize your tax benefits.
See lessWhat is the process of surrender of GST number?
If your business no longer requires GST registration—perhaps because you’ve ceased operations or your turnover falls below the threshold—you can surrender your GST number. Here’s a clear, step-by-step process: 1. Prepare for Surrender Clear Pending Compliance:Ensure that all GST returns are filed anRead more
If your business no longer requires GST registration—perhaps because you’ve ceased operations or your turnover falls below the threshold—you can surrender your GST number. Here’s a clear, step-by-step process:
1. Prepare for Surrender
Clear Pending Compliance:
Ensure that all GST returns are filed and any outstanding tax or interest liabilities are settled. This is crucial before initiating the surrender process.
Review Your Business Status:
Confirm that your business no longer meets the mandatory registration criteria.
2. Log In to the GST Portal
Access Your Account:
Use your credentials to log in to the official GST portal. This is where you’ll initiate the surrender process.
3. Submit the Cancellation Application
Find the Cancellation Option:
In the portal’s dashboard, look for the option to “Cancel/ Surrender Registration”.
Fill Out the Form:
Complete the required form (commonly known as GST REG-16). Provide accurate details about your business and the reason for surrendering your GST registration.
Upload Supporting Documents:
Attach any necessary documentation that confirms your business has either ceased operations or no longer meets the criteria for registration.
4. Submit and Wait for Processing
Application Submission:
Once the form is completed and all documents are attached, submit your application.
Review by the Authorities:
The jurisdictional officer will review your request. If everything is in order, your GST registration will be canceled.
Confirmation:
You’ll receive a notification from the GST department confirming the cancellation of your GST number.
5. Post-Cancellation
-
-
See lessKeep Records:
Retain a copy of the cancellation confirmation and related documents for your records.
Update Your Business Practices:
Ensure that you update your invoicing and accounting systems to reflect the change.
In what conditions GST registration is cancelled by department?
The GST Department may cancel a GST registration if a taxpayer fails to comply with certain requirements. Here are the main conditions under which cancellation can occur: Non-Filing of Returns:If a registered taxpayer fails to file GST returns for a continuous period (usually six months), the departRead more
The GST Department may cancel a GST registration if a taxpayer fails to comply with certain requirements. Here are the main conditions under which cancellation can occur:
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See lessNon-Filing of Returns:
If a registered taxpayer fails to file GST returns for a continuous period (usually six months), the department may cancel the registration. This is to ensure active compliance—if you aren’t filing returns, your registration might be considered dormant.
Failure to Comply with Corrective Notices:
When the department issues notices for discrepancies or non-compliance (for example, incorrect information in the registration application) and the taxpayer fails to respond or rectify the issues, cancellation can be initiated.
Discontinuation of Business:
If there is clear evidence that the business has ceased operations or the taxpayer’s turnover remains consistently below the prescribed threshold, the department may cancel the registration.
False or Misleading Information:
If the information provided during registration is found to be false or misleading, the GST registration may be cancelled. This ensures the integrity of the registration process.
Other Non-Compliance Issues:
Any other significant non-compliance with GST provisions—for example, failure to maintain proper records or adhere to statutory requirements—can also lead to cancellation.
What is capital assets as per income tax act, whether stock in trade is considered as capital assets?
nder the Income Tax Act, 1961, a “capital asset” is broadly defined in Section 2(14). It includes property of any kind held by an assessee, whether or not connected with their business or profession. However, this definition comes with several exclusions. Key Exclusion: Stock-in-Trade Stock-in-TradeRead more
nder the Income Tax Act, 1961, a “capital asset” is broadly defined in Section 2(14). It includes property of any kind held by an assessee, whether or not connected with their business or profession. However, this definition comes with several exclusions.
Key Exclusion: Stock-in-Trade
Stock-in-Trade Is Not a Capital Asset:
Items held for the purpose of sale in the ordinary course of business—such as inventory, raw materials, or finished goods—are classified as stock-in-trade and do not fall under the definition of capital assets.
Why This Matters:
Capital gains on the sale of capital assets are taxed differently from business income. Since stock-in-trade is part of normal business inventory, any profit from its sale is treated as business income, not as capital gains.
In Summary
Defined under Section 2(14) of the Income Tax Act and includes property held for investment or personal use.
Stock-in-trade is excluded from the definition of capital assets because it is part of the inventory used in the normal course of business.
This distinction is crucial for determining the applicable tax treatment on the sale of assets. For capital assets, capital gains tax rules apply, while profits from stock-in-trade are taxed as business income.
See lessWhat is the tax liability on sale of Agricultural Land in rural area as per income tax act?
Under the Income Tax Act, 1961, agricultural income is exempt from tax if it is derived from land used for agricultural purposes in a rural area. This means that if you sell agricultural land that qualifies as rural, any capital gains from the sale are generally not taxable. Key Points to Consider ERead more
Under the Income Tax Act, 1961, agricultural income is exempt from tax if it is derived from land used for agricultural purposes in a rural area. This means that if you sell agricultural land that qualifies as rural, any capital gains from the sale are generally not taxable.
Key Points to Consider
Exemption Basis:
The exemption is provided under Section 10(1) of the Income Tax Act. If the agricultural land meets the criteria (used for agriculture and situated in a rural area), the gains on its sale are not included in taxable income.
Definition of Rural Agricultural Land:
To qualify as rural, the land should be located outside the jurisdiction of a municipality or a cantonment board. Proper land use and title documents are necessary to confirm its status.
Documentation:
Keep all relevant documents, such as land records and usage certificates, to support the claim that the property is agricultural land in a rural area.
Conclusion
If your agricultural land qualifies as rural under the criteria set out in Section 10(1) of the Income Tax Act, any capital gains on its sale will be tax-exempt. This benefit is aimed at supporting the agricultural sector and rural development.
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