Income tax Rules for depreciation under section 115BAA, 115BAB and 115BAC announced

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Section 115BAA and 115BAB were announced for lower corporate tax rate also Section 115BAC was announced for lower tax rate in case of individual.

In all the sections it was mentioned that depreciation shall be calculated based on the depreciation rules as prescribed and now CBDT vide Income tax (22nd Amendment) rules, 2020 has incorporated the above rules in Income tax act which are as under:

“in rule 5, in sub-rule (1), for the proviso, the following proviso shall be substituted, namely: –

“Provided that the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets entitled to more than forty per cent. shall be restricted to forty per cent. on the written down value of such block of assets in case of –

(i) a domestic company which has exercised option under sub-section (4) of section 115BA, or under sub-section (5) of section 115BAA, or under sub-section (7) of section 115BAB; or
(ii) an individual or Hindu undivided family which has exercised option under sub-section (5) of section 115BAC; or
(iii) a co-operative society resident in India which has exercised option under sub-section (5) of section 115BAD:”

Thus, the above amendment only means that highest depreciation rate would be restricted to 40% as is applicable in other cases as well.

“Provided further that, for the purposes of section 115BAA, if the following conditions are satisfied, namely:-

(i) option under sub-section (5) thereof is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2020;

(ii) there is a depreciation allowance, in respect of a block of asset, from any earlier assessment year or allowance of unabsorbed depreciation deemed so under section 72A, which is attributable to the provisions in clause (iia) of sub-section (1) of section 32; and

(iii) such depreciation or allowance for unabsorbed depreciation is not allowed to be set off under clause (ii) or clause (iii) of sub-section (2) thereof, the written down value of the block of asset as on the 1st day of April, 2019 shall be increased by such depreciation or allowance for unabsorbed depreciation not allowed to be set off:”

The above rules just means that if the option under section 115BAA i.e. lower corporate tax rate of 22% for existing domestic company is exercised for AY 2020-21 in that case if there is additional depreciation claim under section 72A shall be added to WDV of asset as on 01.04.2019 and WDV shall be increased accordingly as additional depreciation is not allowed under 115BAA.

Further this also means that if this option is taken after AY 2020-21 and if still there is claim of unabsorbed additional depreciation in that case same shall be waived and later won’t be added to WDV of asset.

“Provided also that, for the purposes of section 115BAC and section 115BAD, if the following conditions are satisfied, namely:-

(i) the option under sub-section (5) of the respective section is exercised for a previous year relevant to the assessment year beginning on the 1st day of April, 2021;

(ii) there is a depreciation allowance, in respect of a block of asset, from any earlier assessment year which is attributable to the provisions in clause (iia) of sub-section (1) of section 32; and

(iii) such depreciation is not allowed to be set off under sub-clause (a) of clause (ii) of sub-section (2) of section 115BAC or clause (ii) of sub-section (2) of section 115BAD, the written down value of the block of asset as on the 1st day of April, 2020 shall be increased by such depreciation not allowed to be set off.”;”

The above proviso also talks the same about additional depreciation as above but for section 115BAC and 115BAD but for AY 2021-22 as same would be applicable for the first time from that Assessment year.

Thus, this are the recent amendments in the Income tax rules for depreciation.

To read the notification CLICK HERE.

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