what is the difference between depreciation in account books
and depreciation as per income tax act
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Answer / yogendra.c
The major Differences are as follows.
1. Method of Depreciation.
In Accounts any depreciation method can be follows as suitable by the company & Accounting Stadard 6. but in case of Income Tax Act, 1961., Specific Method should be followed as prescribed by the Act. For Eg: Electricity Company Should follow Written Down Value (WDV) Method for Calculation of Depreciation.
2. Rates:
In Accounts no rates prescribed, but Section 32 of Income Tax Act, 1961 & Appendix-I to the Income Tax Rules, 1962 specifies the Rates of Taxes to be deducted.
3. Categories:
In Accounts categories is not important due to the own methods of depreciation, but in Income Tax Act, 1961 there are only 4 Categories of Depreciation that is Building, Furniture & Fittings, Machinery & Plant, Intangeble Assets.
4. Computation:
In Accounts Complex computation as No of days of Assets used & other stuffs to be known for calculation depreciation, but in Income Tax, the Computation U/s 32 is very easy.
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In general accounting any method of depreciation can be used for calculating accounting profit but while calculating corporation tax, Taxable profit is calculated and in that HMRC disallows depreciation on fixed assets.
According to UK tax law (HMRC)
Depreciation on fixed assets is disallowed for corporation tax purposes. Companies are instead allowed a fixed writing down allowance on certain capital expenditure such as expenditure on plant and machinery.
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