The Role of Depreciation in Tax Planning : A Study

This study highlights the concept of depreciation and eligibility of assessee for charging depreciation as per Income Tax Act. The rules for charging depreciation have been changed from time to time. The study presents the rules of depreciation from the Assessment Year (AY) 1966-67 to 2012-13. The existing rule is based on the concept of ‘block of assets' which was introduced in the AY 1988-89 based on the recommendations of Direct Tax Laws Committee headed by C C Chokshi. The most important part of this study is the role of depreciation in tax planning, especially in managerial decisions. Another important role of depreciation is its effect on capital budgeting. This has been discussed in three situations with hypothetical examples. To claim depreciation the assessee should fulfil two important conditions, i.e., the assessee must be the owner of the asset (but there are a few exceptions) and the asset is used during the prevailing year. In this regard, the study highlights many case decisions of different High Courts in India, that appear to be conflicting in nature