Ministry of Finance had Vide notification no. 69/2019, made an amendment to Income tax rules, 1962 and hence added a new rate of depreciation for motor vehicles purchased after 23rd August 2019 and before 01st April 2020 and put to use before 01st April 2020.
The new rate of depreciation for cars was kept at 30% as compared to the existing depreciation rate of 15% on cars other than cars used for hire business.
Higher depreciation rate was also announced for motor vehicles used in hire business. To read more: Higher Depreciation for new vehicles purchased in Income Tax w.e.f. 23rd August 2019 – Taxontips
The move was being marketed as a step to boost the car sales which was very low at that time.
Now, the questions which arises is whether the higher depreciation was only applicable for FY 2019-20 or will still continue in FY 2020-21 and the response to same would be that the higher rate of depreciation for the cars/ vehicles purchased after 23.08.2019 had created a new block of asset under plant and machinery and hence as per the Income tax rules such higher rate of depreciation would continue to exist.
Thus now there will be two depreciation rate for motor cars used other than in the business of running them on hire:
| Block of Assets | Depreciation allowed as per percentage of written down value |
| “(2) (i) Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990 except those covered under entry (ii);
(ii) Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020. |
15%
30% |
For depreciation rate for motor car used on hire business will also have two depreciation rates:
| Block of Assets | Depreciation allowed as per percentage of written down value |
| “(ii) (a) Motor buses, motor lorries and motor taxis used in a business of running them on hire other than those covered under entry (b).
(b) Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020.; |
30%
45% |
Based on the above notification it can be said that this higher rate of depreciation is not applicable for two-wheeler motor vehicles and will only be applicable on four wheeler cars, lorries, buses etc.
Thus, while conducting tax audit and filing of Income tax return one need to keep in mind that a separate depreciation block needs to be kept for such cars, buses etc purchased between 23.08.2019 to 31.03.2020.
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