Answer / viss_in

What is Depreciation: Depreciation is the diminution in the
value of asset owing to Usage, obsolecence, passage of time.
Depreciation is meant to amortoize the cost of the asset
over the useful life of the asset.

The rates of depreciation are given as follows:

- in the Companies Act
- Under Income Tax ACt

- The depreciation rates under companies act are used to
charge the depreciation to P&L Account. Hence the
accounts / financial statements published use the rates of
depreciation given under Companies Act

- However, the rates under Income Tax act are used to
calculate the profit to compute the tax. Normally the
profit as per the P&L is taken and adjusted for the
additional deprecation rates allowed under Income Tax Act.
Higher rates of depreciation are allowed under Income tax
act to encourage investments in FIxed Assets by
corporates / businesses. Due to the higher rates of
depreciation the net profit on which tax is levied
(Computed) will be less.

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