Mandatory Claim of Enhanced Depreciation of 15% in case of Motor Vehicles

(Acquired & put to use from 23rd August 2019 to 31st March 2020)

In July 2019, Honorable Finance Minister Ms. Nirmala Sitharaman presented union budget for the financial year 2019-20 in the parliament. Subsequently the finance minister had announced several short and long-term measures to boost economy on 23rd August 2019, 30th August 2019 and 14th September 2019.

Out of several announcements made by the finance minister in her press conference dated 23rd August 2019, one announcement was for providing enhanced depreciation of 15% for all new vehicles purchases before 31st March 2020, which was a move aimed at incentivizing auto purchases.

In order to give effect to above announcement for providing higher depreciation on new vehicles, Income Tax (9th Amendment) Rules, 2019 was notified by the government in terms of notification no. 69/2019 dated 20th September 2019.

Depreciation handwritten text in a notebook on a desk

Revised Rates of Depreciation as notified by the government is as per table below:

Sr. No. Particular Depreciation Rate

(as per % of written down value)

1 Motor cars, other than those used in a business of running them on hire:
Acquired & put to use between 23rd August 2019 to 31st March 2020 30%
Other than those covered by above category 15%
2 Motor buses, motor lorries and motor taxis used in a business of running them on hire:
Acquired & put to use between 23rd August 2019 to 31st March 2020 45%
Other than those covered by above category 30%

Claim of Enhanced Depreciation of 15% is mandatory and not optional:

As per Explanation 5 to Section 32(1) of Income Tax Act, 1961, provisions of the sub-section 1 to section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income.

Thus the claim of enhanced depreciation of 15% is mandatory as the same will be reduced from the written down value of newly acquired motor vehicle even if it is not claimed by the assesse in its income tax computation for the financial year 2019-20.

Half Depreciation to be claimed where the acquisition of new motor vehicle is between 5th October 2019 to 31st March 2020:

2nd proviso to section-32 restricts the depreciation allowance to 50% of the amount calculated at prescribed percentage where the asset is acquired during the previous year and is put to use for the purposes of business or profession for a period of less than 180 days in that previous year.

Therefore in cases where the new motor vehicle is acquired & put to use in between 5th October 2019 to 31st March 2020, then the enhanced depreciation of 15% will be reduced to 7.50%.

Thus in order to have full benefit of enhanced depreciation of 15%, new motor vehicle must have been acquired between 23rd August 2019 to 4th October 2019.

Our Comments:

The year 2019 has seen the union finance minister presenting the Union Budget twice. Later, in order to give fiscal stimulus to Indian economy, several announcements were made by the union finance minister in the months of August & September 2019.

Enhanced depreciation of 15% in case of purchase of new motor vehicle between 23rd August 2019 to 31st March 2019 was one out of those measures to give boost to auto sector in clearing their inventory.

The due date for filing Income Tax Return for FY 2019-20 (AY 2020-21) has already been extended till 30th November 2020 on account of outbreak of novel coronavirus in the country. Further the ITR utility for filing ITR-1, ITR-2, ITR-3 & ITR-4 has been released by the government. Rest of the utilities will also be released shortly.

One has to be very cautious while finalizing the income tax computation for the assessment year 2020-21 as it has to bear in mind that claim of enhanced depreciation in case of purchase of new motor vehicle is mandatory and therefore it will be reduced from written down value even of block of assets even if it is not claimed in its income tax computation.

(Disclaimer: This write up is based on the understanding and interpretation of the author and the same is not intended to be a professional advice.)

[The author is a practicing Chartered Accountant and can also be reached at goyalcanitin@gmail.com]

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