Clarification for Depreciation on Vehicles

Depreciation is an expense which is periodically allocated cost of an asset’s original purchase value/Acquisition cost over the useful life of the asset. When companies place a fixed asset in operations for use over multiple years, they cannot expense the asset in one single period, but must depreciate the value of the asset over time and charge related cost allocation to depreciation expense. Using depreciation expense helps companies better match asset uses with the benefits provided by an asset.

In India Depreciation is considered as a most Important aspect from Taxation Point of view.

Recently our Finance Ministry Of India Hon. Nirmalaji Sitaraman announced some measures for the auto sector to create demand for motor vehicles.

1) Announcement of Higher Depreciation on vehicles purchased from 23^rd Aug 2019 to 31^st March 2020.

2) Deferring increased registration fees of vehicles.

3) Enhancing Liquidity for purchase of vehicles.

4) Relaxation to clear the stock of BS-IV old stocks.

In this Article we are going to discuss about Higher Depreciation Rate on some vehicle and care to be taken while finalizing books of accounts in this regards for Financial Year 2019-2020.

Legal Text Of Notification.

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).	30 %
(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.	45 %

[Notification No. 69 /2019/ F.No. 370142/17/2019-TPL]

Higher Depreciation is only for some vehicles.

In the view of above announcement, Income Tax Rules has been amended and depreciation benefits with higher rates will be allowed on vehicles 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.

Only acquisition is not sufficient, it must be ‘put to use’ on or before 31.03.2020. Therefore, care is required by buyer to avoid point of dispute as to the date on which vehicle was put to use. If full depreciation is desired then the vehicle must be put to use on or before 01/10/2019.

Registration and other procedure must be ensured, documented and proofs must be kept, to satisfy the AO and to avoid dispute about date of put to use.

This is a one-time benefit of higher depreciation. In other words, if the asset is acquired and put to use within the specified period (from 23.08.2019 to 31.03.2020) then only the higher rate of depreciation shall be available for AY 2020-21 and all the subsequent assessment years. This benefit shall expire from 01.04.2020. Normal rates of depreciation shall apply in those cases.
Higher rate of depreciation is also applicable for second-hand or previously used motor cars or motor vehicles there is no condition that eligible vehicle should be new.
In case the assessee has any other block of assets under ‘Machinery and Plant’ which is eligible for 30 percent of depreciation then the new motor car shall form part of the block of assets of that block. There is no existing rate of depreciation of 45 percent, hence any motor vehicle purchased eligible for a 45 percent rate of depreciation shall form a new block of assets in ‘Machinery and Plant’.
Higher rate have been prescribed only for motor cars, motor buses, motor lorries and motor taxis. Higher rates are not prescribed for tractors, trailers, Mopeds, Bikes, Bi-cycle etc.(this subject to Interpretation)

Tags: section 32