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Setoff and carry forward of unabsorbed Depreciation - Section 32(2) - Income Tax - Ready Reckoner - Income TaxExtract Setoff and carry forward of unabsorbed Depreciation - Section 32(2) Set-off of Unabsorbed Depreciation Current year depreciation shall be allowed to be set off against any income assessable for that Assessment Year. Carry forward of Unabsorbed Depreciation Depreciation to the extent not set off shall be carried forward to the next year and set off against the income under any head. Notes: Depreciation shall be allowed to be carried forward even if business has been discontinued. The unabsorbed depreciation can be carried forward indefinitely. Priority of set-off i. Current Year Depreciation ii. Brought forward Business Losses iii. Brought forward Depreciation Unabsorbed depreciation can be carried forward and set-off, even if the return is filed after the due date of filing of return or return is not filed at all. Depreciation can be carried forward only if the assessee is the same, i.e. the assessee who claimed depreciation and the assessee who wants to carry forward the depreciation must be the same. Exception to this rule is section 72A / 72AA / 72AB where depreciation can be carried forward even when the assessee has changed in the following situations: i. Firm succeeded by a Company ii. Proprietorship Concern succeeded by a company iii. Amalgamation iv. Demerger v. Amalgamation referred to in Section 72AA vi. Amalgamation and demerger of Co-operative Bank referred to in Section 72AB vii. Company succeeded by LLP. Conditions of set-off of unabsorbed Depreciation: Depreciation has to be first deducted from the income chargeable to tax under the head Profit and loss of business and profession . If the depreciation is not fully adjusted with such income chargeable to tax in the current period, then the remaining unabsorbed portion will be carried off to the next year and would be deemed as the part of depreciation for that year. In the case of set off, the following order should always be followed: The first adjustments are to be made towards the current scientific research expenditure, family planning expenditure and current year depreciation Secondly, the brought forward business loss should be adjusted Lastly, the unabsorbed depreciation, unabsorbed capital expenditure on scientific research or family planning have to be adjusted. Unabsorbed depreciation can be carried forward for indefinite period and can be set off against any other income (other than salary). The unabsorbed depreciation can be carried forward even if the business related to such depreciation have been discontinued.
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