Depreciation refers to the decrease in value of an asset over a period of time. Practical and comprehensive guide and depreciation rates as per companies act 20 calculated using useful life as per scheduleii and. These regulations result in a company having larger depreciation deductions sooner and therefore receiving the income tax savings sooner. Calculation of depreciation using wdv method if date of acquisition is missing you can also find these best articles in our website. Depreciation books microsoft dynamics ax forum community.
Basically the main difference in the calculation of depreciation under income tax act and the companies act is that of the methods to be adopted for the purpose of computation. As opposed to the schedule xiv to the companies act, 1956 1956 act, schedule ii to the 20 act brings along a number of changes in how indian companies compute depreciation. Ebook by icai 0 0 raj kumari tuesday, april 14, 2015 edit this post keeping in view the changing economic environment as well as the growth of our economy, the companies act, 20 was enacted to improve corporate governance and to further strengthen regulations for the. Schedule ii to the companies act, 20 aditi chandak, chartered accountant with the introduction of the revamped company law, changes have been brought about in quite a few areas of interest. As per section 123 of the companies act 20, depreciation shall be calculated as per schedule ii and these have been bought into force from 1 st april 2014. How to calculate depreciation as per companies act 20. Depreciation calculator under companies act 20 cakart. Changes in depreciation provisions under companies act, 20useful lives to compute depreciationsection 1232 and schedule iiby ca jigar shah and ca sudeep dasanianalysis of changes under depreciation provisions the new companies act, 20 has brought a major alteration in the regulations governing depreciation provisions. Calculation of depreciation under companys act 20 with calculator. Amendments in depreciation policies as per companies act 20. Residential buildings except hotels and boarding houses. Page 3 depreciation under the companies act, 20 baroda branch, wirc, icai overview of key developments passed by the lok sabha on 18 december 2012 passed by the rajya sabha on 8 august 20 received the president assent on 29 august 20 and notified on 30 august 20 mca released draft rules for comments in 6 phases during september to november. In schedule ii, only useful life is provided, therefore the entity is required to calculate the appropriate rate of depreciation as per the method used by it slm. In income tax,dep is not calculated on basis of number of dayseither full depreciation is calculated or half depreciation as shown belowif asset is put to use for 180 days or more in the year of purchase, then full depreciationif asset used for less than 180 days, half depreciationif asset purchase.
The companies could charge higher depreciation, if the useful life of an asset was shorter than that envisaged under schedule xiv. What is the difference between book depreciation and tax. For assets in asset class 3, the net book value should be depreciated over remaining useful life. A comparative study on depreciation as per companies act. Schedule ii of companies act 20, provides for useful life of depreciable assets which can be used to calculate depreciation based on wdv and slm method. Rate of depreciation as per companies act is given under schedule xiv and the.
It says the depreciation shall be charged on the cost of the asset, less its residual value, spread over the number of useful life. The income tax act 1962, has made it mandatory to calculate depreciation. Companies act 1956 does not deal with the amortization of intangible assets but new schedule by companies act 2014 provides the method to. About practical guide to depreciation under companies act, 20.
According to the querist, with the enactment of the companies act, 20, schedule ii provides for the concept of useful life of the asset instead of specific depreciation rates as provided under schedule xiv to the erstwhile companies act, 1956, for straight line method and written down value method. Disallowing depreciation as per companies act tax and. The useful lives given in the context of computers and data processing units nesd are. The schedule xiv to the companies act, 1956 prescribes the rates of straight line method slm and written down valuewdv at which depreciation on various assets need to be provided. What will be accounting entry in the books of account and calculation. Selection of asset group as per companies act 20 as per new companies act 20 depreciation should be recognize over the useful life of asset so in genius we are providing you list of assets as per schedule ii of companies act 20 so that user can choose appropriate asset from available list with its useful life for auto calculation of.
The fact is the company must 1 maintain depreciation records for the financial statement depreciation that is based on the matching principle, and also 2 maintain depreciation records for the tax return depreciation that is. If the books of account uses depreciation as per companies. Depreciation under companies act 20 provisions and case. Depreciation as per companies act and income tax act. The difference between book and tax depreciation leads some people to say, oh, the company has two sets of books. Depreciation as per schedule ii of companies act, 20. Resultantly, the amount of depreciation as per companies act and as per income tax act also differ. Companies act, 20 to be issued under the authority of the council of the institute, with a view to establish uniform accounting principles for accounting of depreciation as per schedule ii to the companies act, 20. Depreciation as per income tax assignment depreciation chart. Depreciation as per companies act 20 for financial year 201415 and thereafter. Depreciation as per companies act and income tax act under the companies act. Changes in asset accounting for indian companies act 20. Depreciation rates as per companies act 20 updated.
As per not 2052506 india companies act solution effective from 01. Amount of depreciation original cost less residual valueexpected useful life of the asset. Now the new companies act has defined the useful life for each type of asset which is defined in schedule ii. As per schedule ii of the act, depreciation is the systematic allocation of the. This section has come into force with effect from 1st april 2014 implying that the companies will be required to compute depreciation in their financial statements for the year closing on 31st march 2015 in accordance with schedule ii. About the book the companies act, 20 has introduced one of the most important provisions for companies as well as auditors in the form a new method of calculating depreciation as per schedule ii part c of the companies act 20. Depreciation rate chart as per part c of schedule ii of the companies act 20 iv 1 towers 18 years 5. Latest changes in depreciation rule, companies act 20.
Depreciation rate chart as per part c of schedule ii of the companies act 20 nature of assets useful life rate slm rate wdv v furniture and fittings nesd a general furniture and fittings b furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other education. Critical issues relating to depreciation accounting. Depreciation rates as per companies act,1956 taxguru. Presentation of depreciation as per companies act 20 as. As per section 123 of the companies act 20, depreciation shall be calculated as per schedule ii and these have been bought into force from 1st april 2014. Section 123 of the companies act, 20 requires every company to provide depreciation in accordance with the provisions of schedule ii. Schedule ii of companies act 20 provides the useful lifes of tangible assets as against the minimum rates of depreciation which were specified in schedule xiv of the companies act, 1956.
The depreciation calculated as per companies act will be added back to the profits of the company and depreciation as per income tax act will be deducted whi. During the computation of gains and profits from profession or business, taxpayers are allowed to claim depreciation on assets that were acquired and used in their profession or business. I jan 2017 depreciation methods differ for accounting purpose and for taxation purpose. Just wanted to make a point, the aforementioned rates of 100% and 60% are fo assessees carrying on profession, but if assessees carrying on business in running lending libraries, then depreciation allowed is 100% and for assessees carrying on other business the rate would be 15% as per the income tax act 1961. As per companies act 20, the depreciation is calculated on the basis of useful life of asset. Depreciation accounting rules as per the us gaap sapling. In straight line method the amount of depreciation is uniform for all the years where in written down method the amount of depreciation is highest in the first year. As per new schedule ii depreciation calculation has been shifted from predefined rates to useful life. Till now we used to calculate the depreciation as per schedule iv of the companies act 1956. This issue of first notes summarises the key aspects of the application guide issued by the icai. Therefore, there is difference between income as per books and taxable income as per it act. Depreciation books is a concept in ax where in the system allows the users to maintain multiple depreciation books based on the requirements of the law. Is it necessary to charge depreciation as per companies. If a company was calculating depreciation charge as per wdv method till 31st march 2014 under the provision of companies act, 1956 and wants to shift to slm method w.
Download depreciation calculator under companies act 20 at cakart. Depreciation as per companies act, 1956 rates of depreciation under companies act schedule xiv see sections 250 and 350. Under income tax act 1961, depreciation on assets is g. What is the difference between depreciation as per income. Apart from this, it has brought far reaching changes in other areas, the spectrum of financial. Depreciation shown is as per income tax act as companies act is not applicable refer q1 above in case of company, we pass entry of depreciation as per companies act hence,in our profit and loss account,depreciation as per companies act is shown however while paying taxes,we have to use depreciation as per income tax act. Depreciation rate chart as per companies act 20 with. Gn a 35 guidance note on accounting for depreciation in.
The depriciation to be provided in the companies act is for the pupose of preparation of annual account as per schedule six of the companies act 1956 while in income tax law uits for the purpose of calculating taxable income of the company. The icai provides guidance on provisions relating to. Many companies consider writeoffs of some of their longlived assets. Scehdule ii 1 of the companies act, 20 prescribes the depreciation rules, rates and useful life of the assets. In accountancy, depreciation refers to two aspects of the same concept. Is it necessary to charge depreciation as per companies act in books. Practical guide to depreciation under companies act, 20. In this article we have compiled depreciation rates under companies act 20 under written down value wdv method and as per straight lime method slm. A practical guide to depreciation under companies act, 20. Rates has been changed for financial year 201718 and onwards. Depreciation as per provisions of schedule ii to the. Depreciation rate chart as per part c of schedule ii of.
Companies act, 20 schedule xiv to the companies act, 1956 assets costing less than rs. For companies, depreciation rates to be considered in books of accounts are defined in companies act but while calculating income tax the depreciation will be allowed only as per rates given in income tax act. Concerning the depreciation to be charged on the assets, there has been hefty changes in the new act. About the book the companies act, 20 has introduced one of the most important provisions for companies as well as auditors in the form a new method of calculating depreciation as per schedule ii. Understand the rule of depreciation as per the companies.
Understand the rule of depreciation as per the companies act 20 the companies act, 20 and the amendment in the same always create bewilderment. It is used by companies private limitedlimited companies while making their books of accounts hence,it is not of use of proprietorship and. Depreciation as per income tax act is used when the company files its income tax return. Depreciation is computed either using the straight line method or written down value method. This method is suitable for furniture,patent,s,trademark,lease etc. What is deferred tax asset and deferred tax liability dta. As per companies act the company is free to adopt method provided in income tax law provided the same is consistently followed and disclosed in. Here are some of the assets as mentioned in part c of schedule ii. Depreciation to be provided considering the original cost of the asset. As per schedule ii of companies act,20 depreciation is to be provided on assets based on their useful lives given in schedule. A comparative study on depreciation as per companies act and income tax act in indian context ca. Depreciation rates and provisions as per companies act 20. The depreciation is not getting posted till the end of useful life of the asset and also the rates are not uniform year on year basis. However when we are using the wdv method based on useful life we are facing issues.
Changes in depreciation provisions under companies act, 20. An act to reform company law and restate the greater part of the enactments relating to companies. He is the author of 2 books and has vast experience of representing cases. After applicability of new companies act 20 from 1st april 2014 schedule ii of companies act has been applied to all type of companies. Depreciation chart as per companies act basics depreciation chart. We have also compiled changes to schedule ii useful lives to compute depreciation read with section 123 of companies act,20 made vide notification no. Purely temporary erections such as wooden structures. Depreciation on revalued assets entire charge to the statement of profit and loss. In some years the regulations may allow certain companies to charge the entire equipments cost to depreciation in the first year. The companies act, 20 replaces schedule xiv by schedule ii which requires systematic allocation of the depreciable amount of an asset over its useful life. The calculations of the extra depreciation for double shift working and for triple shift working shall be.
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