DT: Amendment in Additional Depriciation

If you have missed out our first series of amendment then you can catch it here. While, amendments related to “period of holding” and “Residential Status” are available here. Today, we are providing the amendment related to additional depreciation.

Section 32(1)

To encourage investment in new plant or machinery by the manufacturing and power sector, additional depreciation of 20 per cent of the cost of new plant and machinery is available in the year in which the asset is put to use. It is allowed over and above normal depreciation allowance. If, however the new plant and machinery is put to use for less than 180 days in the year in which it is acquired, the additional depreciation would be restricted to 10 per cent of cost of new plant and machinery in the year it is acquired. In such a case, law was silent whether the assessee can claim the balance additional depreciation (i.e. 10 per cent cost of new plant and machinery) in the immediately succeeding year.

Amendment in section 32(1)

Finance Act, 2015 has made an amendment to the section 32(1) to provide that if the asset is put to use for less than 180 days in the year of acquisition then additional depreciation would be 10 per cent of the cost of acquisition in the first year and the balance 10 per cent would be available in the immediately succeeding previous year. The amended provisions would be applicable from the assessment year 2016-17.

Analysis

Earlier, assessee was deprived of the benefit of 20% additional depreciation on new plant and machinery if the asset was put to use for less than 180 days during the previous year. However, assessee would now be entitled to claim the full benefit of additional depreciation even if the asset was not put to use for 180 or more than 180 days in the previous year by virtue of the recent amendment.

Example: XYZ Ltd. engaged in manufacturing of articles, purchased the new plant and machinery for 1,00,000 on 14-5-2015 and put it to use on 31-12-2015. Calculate the additional depreciation on the newly purchased asset.

Solution: Since the asset is put to use for less than 180 days during the previous year 2015-16, only 50% of  additional depreciation would be allowable in the assessment year 2016-17 i.e. 1,00,000 x 20% x 50% = 10,000.

In the assessment year 2017-18, XYZ Ltd. would be entitled to claim the remaining additional depreciation i.e. 10,000 (1,00,000 x 20% - 10,000) by virtue of the recent amendment.