1. 1 Chapter IX CAPITAL ALLOWANCES 9.01 Allowance for Depreciation As in Accounting, assets are depreciated for tax purposes as well. But, the rates are specified in the IRA 9.02 Principles Underlying Calculation Similar to the accounting aspects as well. SLAS ?

2. 2 Chapter IX CAPITAL ALLOWANCES 9.03 Allowance is granted for Plant, Machinery and Fixtures Also on Motor Vehicles, Motor Coaches and Qualifying Buildings 9.04 Definition of Plant & Machinery Machinery: Mechanical devices which produces or assists in producing Plant: An aspect without which production could not go on (Very Broad Definition)

3. 3 Chapter IX CAPITAL ALLOWANCES 9.06 Entitlement: Wear and Tear, Owner-User Wear & Tear: by constant usage. Not by mere lapse of time. Owner – User: Owner even by gift, exchange or through heritage. He must use it in his trade, business, profession or vocation. Leasing? Not entitled for Capital Allowances as he is not the owner-user. The lessor can claim it as it’s his business

4. 4 Chapter IX CAPITAL ALLOWANCES But for finance leasing there is leasing allowance (not for operating leases) Prior to 31 st March 2004 For any Motor Vehicle, Lorry, Office Furniture – Maximum Allowable is 1/4 th of the total rental payment For any Plant, Machinery & Fixtures – Maximum Allowable is ½ of the total rental payment

5. 5 Chapter IX CAPITAL ALLOWANCES After to 1 st April 2004 For any IT Equipment, Calculating Equipment – Maximum Allowable is 1/4 th of the total rental payment For any Motor Vehicle, Furniture, Plant & Machinery – Maximum Allowable is 1/5 th of the total rental payment E.g. A Ltd finance leased a machinery for a Rs. 10,000/- monthly rental for next 4 years on 1 st June 2005. Calculate the Lease Allowance?

6. 6 Chapter IX CAPITAL ALLOWANCES 9.07 Allowance: In the year of acquisition, full allowance is granted, provided that it has to be used in that year of assessment. No allowance on year of disposal. 9.08 Cost of Acquisition Similar to accounting concepts. (Cost = Purchase Price + Installation Charges + Dismantling Charges) If inherited or gifted use market value

7. 7 Chapter IX CAPITAL ALLOWANCES 9.09 Machinery on Hire Purchase The purchaser is the user as well as the de facto owner and hence, he is granted CA (cost excludes any interest) 9.12 Plant & Machinery Provided by Employer to Employee To be used in the residence no depreciation allowance is granted.