Fan Depreciation Rate: How is Depreciation Calculated
- Nimisha Panda
- Apr 9
- 8 min read
Under the Income Tax Act, an assessee may claim depreciation for investments they made in furniture, plant, and machinery during the fiscal year. Ships, automobiles, books, scientific equipment, and surgical instruments used for business or profession are all considered plant for the purposes of income tax. All kinds of mechanical objects and devices are considered machinery. Additionally, machinery doesn't have to be a standalone device; it might be a component of a larger machine or even one that needs to be utilized in tandem with other machines. The fan's income tax depreciation rate is 15%. This article examines the depreciation rate under income tax, with a particular focus on fans.
Table of Contents
What is Depreciation?
Depreciation is the process of writing off an asset's cost over the course of its useful life. The Income Tax Act permits deductions based on the Written Down Value (WDV) technique for depreciation, which is a deduction in an entity's profit and loss statements utilizing depreciable assets. However, the straight-line technique is an alternative if the project involves the generation or generation and distribution of power.
Depreciation on Plant and Machinery (including Fans)
The Income Tax Act states that if a business buys equipment or plant within a financial year, specific depreciation rates apply. A business that makes annual investments in machinery, furniture, or equipment must record depreciation since the assets' values decline over time. The phrase 'plant' in the context of income tax computation encompasses the scientific apparatus, ships, trucks, and surgical equipment necessary for a firm to function. Various mechanical objects and gadgets are referred to as machines. Machines don't have to be standalone devices; they can be a part of larger machinery. As an alternative, it could be a combination of one or more devices. Fans also come under this category, and depreciation on them is charged at a rate of 15%.
Eligibility for Claiming Depreciation on Assets
The following criteria have to be fulfilled to claim depreciation on assets, including fans:
Ownership: The taxpayer must be the sole or partial owner of the assets.
Co-ownership: Depending on their individual ownership stake in the asset, co-owners are qualified to claim depreciation.
Business Use: The taxpayer's business or occupation must be the use of the assets. Depreciation will only be permitted for the percentage of assets used for business purposes if they are used for both personal and business reasons. Section 38 of the Act gives the Income Tax Officer the power to decide how much depreciation can be claimed.
Exclusions: Goodwill and land costs are not eligible for depreciation claims.
Presumptive Taxation Plan: The deemed profit is seen as having taken depreciation into account if the taxpayer chooses the presumptive taxation plan.
Mandatory Depreciation: Since the Assessment Year (A.Y.) 2002–03, depreciation has been required. Whether or not the taxpayer includes it in their profit and loss account, it will be considered a deduction. After depreciation is taken into account, the taxpayer is able to carry forward the Written Down Value (WDV).
Depreciation Rates: The Income Tax Act and the Companies Act of 1956 have different depreciation rates. Regardless of the rates used in the books of accounts, only the depreciation rates outlined in the Income Tax Act are relevant.
Written Down Value of Assets
Depreciation must be computed at the specified percentage on the asset's Written Down Value (WDV), which is established using the asset's real cost, in accordance with Section 32(1) of the Income Tax Act. Depreciation calculations require an understanding of "WDV" and "Actual Cost." WDV is defined as follows in the Income Tax Act:
The WDV is calculated using the asset's real cost for assets purchased during the current fiscal year.
The WDV for assets purchased in prior years is determined by deducting the asset's real cost from the amount of depreciation permitted by the Income Tax Act.
Allowable Depreciation Amount
The Written Down Value (WDV) method is used to calculate depreciation. The Income Tax Act's Appendix 1 contains the depreciation rates.
Power Generation Undertakings: Businesses that generate power or generate and distribute it might choose to claim depreciation using the Straight-Line technique or the WDV method. This option needs to be used prior to the return filing deadline.
Financed Lease Deals: According to AS-19 (the Accounting Standard on Leases), the lessee of a financing lease is required to capitalize the leased assets in their books. The lessee is entitled to depreciation on the assets since they have ownership-like rights over them.
Amalgamation/Demerger: The entire depreciation allowance is split between the merging and amalgamated companies or the demerged and resultant entities in the case of an amalgamation or demerger. The overall depreciation is computed as if there had been no amalgamation or demerger. The allocation is determined by the time frame in which each company utilized the assets.
Techniques to Calculate Depreciation
The useful life of assets and the methodologies used to calculate depreciation can differ based on the industry and asset type. For tax and accounting reasons, these approaches might also vary. The Straight Line Method (SLM) and the Written Down Value (WDV) Method are the two most widely utilized depreciation techniques. The method used is the primary difference between the depreciation computations under the Companies Act and the Income Tax Act, aside from the depreciation rates.
Methods of Depreciation Based on Prescribed Rates under the Companies Act of 1956:
Straight Line Method: Throughout the asset's useful life, the same amount of depreciation is applied annually under this technique. In this case, the asset's cost is distributed equally over the course of its useful life. This approach is simple to implement and works well for assets that are used consistently throughout their lives.
Depreciation=Cost of Asset- Residual Value/ Useful Life
Written Down Value Method: A specified percentage of depreciation is applied annually to the asset's declining balance under the Written Down Value method. This indicates that as the asset's value drops over time, so does the amount of depreciation. For assets that depreciate more rapidly in the first few years of their useful lives, this approach is usually employed.
Depreciation= Opening WDV * Depreciation rate
Depreciation Methods Based on Asset Useful Life under the Companies Act, 2013
Straight Line Method
Written Down Value Method
Unit of Production Method
Depreciation Methods Based on Prescribed Rates under the Income Tax Act, 1961
Straight Line Method for Power Generating Unit
Written Down Value Method (Block-wise)
Conclusion
Every asset has a different rate of depreciation, whether it's a fan, air conditioner, laptop, or match frames in a factory. As a result, you must verify the rate at which the income tax department determines an asset's depreciation rates. Every asset is subject to depreciation rates, regardless of whether you follow the Income Tax Act or the Companies Act of 2013.
FAQs
1. What is depreciation under the Income Tax Act?
Depreciation is the gradual decline in an asset's value brought on by aging, obsolescence, or wear and tear. Depreciation can be claimed as a cost to lower taxable income under the Income Tax Act.
2.Which method of depreciation is allowed under the Income Tax Act?
For the majority of assets, the Income Tax Act mainly permits the Written Down Value (WDV) approach. The Straight Line Method (SLM) is also allowed for power-generating equipment.
3.How is depreciation calculated as per the Income Tax Act, 1961?
According to Section 32 of the Income Tax Act of 1961, depreciation is calculated using the Act's defined rates if an asset is used on or before October 3rd (more than 180 days). Depreciation is limited to 50% in the year of acquisition if the asset is used for fewer than 180 days.
4.Is there a minimum rate for claiming depreciation?
Yes, you can only claim depreciation if the asset is used during the year. Depreciation cannot be claimed if the asset is not used. Furthermore, the WDV or the asset's specified rate must be used to compute depreciation.
5.What is the depreciation rate for Fan?
According to the Income Tax Act, the fan's depreciation rate is 15%.
6.What is a ‘block of assets’?
According to the Income Tax Act, a "block of assets" is a collection of assets that are grouped together for the purposes of calculating depreciation. There is just one depreciation rate applied to assets in the same block.
7.Which depreciation is better?
The Straight Line Method is the most widely used and well-liked depreciation method; it is also the simplest to calculate
8.Who decides depreciation rates?
The depreciation rates in India are set by the Ministry of Commerce.
9.Are there any assets exempt from depreciation?
According to the Income Tax Act, some assets, such as land, goodwill, and assets not employed for business purposes, are not eligible for depreciation.
10.Is depreciation applicable for intangible assets?
No, intangible assets like patents and copyrights are exempt from depreciation.
11.Is it mandatory to deduct depreciation for tax purposes?
Whether or not the taxpayer has claimed depreciation while calculating their overall income, it must be subtracted automatically.
12.Can depreciation be claimed on assets used partially for personal purposes?
It is possible to claim depreciation on items that are utilized for both personal and corporate reasons. Only the percentage of assets utilized for commercial purposes, however, may be deducted from total revenue.
13.What is the standard depreciation rate for a fan under the Income Tax Act?
Under the Income Tax Act, ceiling fans, table fans, and similar electrical appliances are classified under “Plant & Machinery” and typically depreciate at a rate of 15% per year using the Written Down Value (WDV) method.
14.How is the depreciation rate of a fan calculated for accounting purposes?
Depreciation can be calculated using either the Straight Line Method (SLM) or the Written Down Value (WDV) method. The WDV method applies a fixed percentage every year to the asset's reduced value, while SLM spreads depreciation evenly over the asset’s lifespan.
15.Can I claim depreciation on a ceiling fan purchased for home use?
No, depreciation benefits apply only to business-related assets. If a fan is purchased for office or business premises, depreciation can be claimed as an expense under the business’s financial records.
16.How does GST impact the depreciation calculation for electrical appliances like fans?
If a business purchases a fan and pays GST, the GST amount can be claimed as Input Tax Credit (ITC), reducing the asset’s taxable cost. The depreciation is then calculated on the net amount after deducting the GST component.
17.Is there a different depreciation rate for industrial fans compared to household fans?
Yes, industrial fans may qualify for a higher depreciation rate if they are categorized as specialized machinery. However, most standard fans used in offices and businesses fall under the 15% depreciation rate.
18.How does accelerated depreciation work for energy-efficient fans?
Some energy-efficient appliances qualify for accelerated depreciation under government policies promoting sustainability. If the government provides incentives, these fans may depreciate at a higher rate than standard electrical appliances.
19.Can I adjust the depreciation rate if the fan is used in a rented commercial property?
Yes, if a business installs a fan in a rented commercial space, depreciation can still be claimed. The business must own the asset and record it in their books to claim the depreciation expense.
20.What happens to the depreciation of a fan if it’s replaced before its useful life?
If a fan is replaced before being fully depreciated, the remaining value is either written off as a loss or adjusted against the cost of the new asset. The depreciation calculation resets for the newly purchased fan.
21.Are ceiling fans and exhaust fans categorized under the same depreciation rate?
Yes, both ceiling fans and exhaust fans generally fall under the same depreciation rate of 15% unless the exhaust fan is classified as part of specialized industrial machinery.
22.Can a business claim depreciation on second-hand fans?
Yes, businesses can claim depreciation on second-hand assets, but the depreciation is applied to the purchase price of the used fan, not its original cost. No additional benefits apply for used equipment.
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