December 30, 2016
CBDT curbs the depreciation rates u/s 32
Notification No. 103/2016 dated 7th November, 2016
An important amendment was recently notified by the CBDT which can have wide ramifications but which has not been talked about much in the press. This tax alert explains the changes and their impact.
The CBDT issued a Notification No. 103/2016 on 7th November, 2016 reducing the rates of depreciation under section 32(1)(ii) of the Income-tax Act, 1961 (“Act”) retrospectively from 1st April, 2016 (i.e. for the current
financial year) for corporate assessees who are claiming the lower corporate tax rate of 25% under Section 115BA of the Act. Now, the maximum rate of depreciation in respect of any block of asset is restricted to 40% of WDV on such block. This is in line with the Government’s policy of reducing the corporate tax rates while curtailing the exemptions, deductions and other benefits provided under the Act. Readers would be aware that section 115BA was inserted in the Income-tax Act through the Finance Act 2016 and it provides a special tax regime for new companies (startups).
financial year) for corporate assessees who are claiming the lower corporate tax rate of 25% under Section 115BA of the Act. Now, the maximum rate of depreciation in respect of any block of asset is restricted to 40% of WDV on such block. This is in line with the Government’s policy of reducing the corporate tax rates while curtailing the exemptions, deductions and other benefits provided under the Act. Readers would be aware that section 115BA was inserted in the Income-tax Act through the Finance Act 2016 and it provides a special tax regime for new companies (startups).
Since such companies are eligible for lower tax rate, the government seems to have thought it appropriate to reduce the depreciation for such companies in respect of those assets where high rates of depreciation are prescribed in the Appendix 1 to Rule 5 of the Income-tax Rules. The idea seems to be that in such cases, wherever rates in excess of 40% have been prescribed, the concerned company will not be allowed depreciation in excess of 40%.
However, unfortunately, the amendment has been drafted in a manner which indicates that while the intent appears to be reduction in the rate of depreciation only for assessees opting for the lower rate of corporate tax, in practice, the same would apply uniformly for all taxpayers including those paying tax at the regular rate of 30%. As a result, the effect would be that, going forward, for instance, depreciation on computers can no longer be claimed @ 60% but will be restricted to 40%.
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