Chapter IX CAPITAL ALLOWANCES

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Chapter IXCAPITAL 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 ?
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Chapter IXCAPITAL 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)
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Chapter IXCAPITAL 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 its his
business
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Chapter IXCAPITAL ALLOWANCES

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

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Chapter IXCAPITAL ALLOWANCES

• After to 1st April 2004
• For any IT Equipment, Calculating Equipment
  Maximum Allowable is 1/4th of the total rental
  payment
• For any Motor Vehicle, Furniture, Plant
  Machinery Maximum Allowable is 1/5th 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 1st
  June 2005. Calculate the Lease Allowance?

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Chapter IXCAPITAL 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
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Chapter IXCAPITAL 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.