Section 34, of Income Tax Act, 1961 states that
(1) [***]
(2) [***]
(3)(a) The deduction referred to in section 33 shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use) and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than—
(i) for distribution by way of dividends or profits ; or
(ii) for remittance outside India as profits or for the creation of any asset outside India :
Provided that this clause shall not apply where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958 :
Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words “seventy-five”, the word “fifty” had been substituted.
Explanation.—[Omitted by the Finance Act, 1990, w.r.e.f. 1-4-1962. Earlier, it was inserted by the Finance Act, 1966, w.r.e.f. 1-4-1962.]
(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5) of section 155 shall apply accordingly :
Provided that this clause shall not apply—
(i) where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958 ; or
(ii) where the ship, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a 36Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ; or
(iii) where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (3) or sub-section (4) of section 33.
section 34 of Income Tax Act, 1961
Are you looking to understand about Conditions for depreciation allowance and development rebate ?
This detailed article will tell you all about Conditions for depreciation allowance and development rebate.
Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.
Depreciation allowance and development rebate are two vital components of the Income Tax Section 34 that grant taxpayers relief for investing in fixed assets. The primary aim of these incentives is to motivate businesses to make capital expenditures and enhance their equipment and infrastructure. In this blog, we will delineate the conditions for claiming depreciation allowance and development rebate.
Depreciation allowance is a deduction that businesses can avail for the wear and tear of their fixed assets over time. This deduction enables businesses to recover the cost of their assets and reduce their taxable income. The following are the eligibility requirements for claiming depreciation allowance:
Possession: The asset must be owned by the taxpayer, regardless of whether it is an individual, company, or firm. Assets held on lease or rent are not eligible for depreciation.
Usage: The asset must be employed for business or professional purposes. If the asset is utilized for personal purposes, it is not eligible for depreciation.
Asset categorization: The asset must belong to one of the specified categories of assets under the Income Tax Act. These categories include buildings, plant and machinery, furniture, and vehicles.
Asset life: The asset must have a determinable useful life, which is the estimated time that the asset will be in use. Different classes of assets have varying useful lives, which are prescribed by the Income Tax Act.
Asset condition: The asset must be in use and in good condition. Depreciation cannot be claimed for assets that are not in use.
Development rebate is a tax incentive offered to businesses for investing in new machinery and equipment. The development rebate reduces the cost of new assets and encourages businesses to modernize and upgrade their equipment. The following are the conditions for claiming development rebate:
Investment: The taxpayer must invest in new machinery or equipment for the purpose of the business or profession.
Usage: The new machinery or equipment must be used for business or professional purposes.
Eligible assets: The new machinery or equipment must fall under the specified categories of eligible assets. These categories include plant and machinery, ships, and aircraft.
Asset condition: The new machinery or equipment must be in use and in good condition.
Claiming the rebate: The taxpayer can claim the development rebate in the year in which the asset is put to use. The amount of the rebate is calculated as a percentage of the cost of the asset, which is prescribed by the Income Tax Act.
In conclusion, depreciation allowance and development rebate are crucial tax incentives that encourage businesses to invest in fixed assets. These incentives are available to businesses that meet the specified conditions, which include possession, usage, asset categorization, asset life, and asset condition. By claiming depreciation allowance and development rebate, businesses can reduce their taxable income and enhance their cash flow, leading to increased investment and growth.