Depreciation in a nutshell

 

For example, A machine costs 100000, residual value 5000 and life of 30 years. According to the company 9.5% is the rate and 15% in Income tax Act. 

Depreciation under companies Act= 9500

Depreciation under Income tax Act= 15000 

Difference= 5500 

Deferred tax liability= 1716 (5500*Corporate tax rate)

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item should be depreciated separately. Where, during any financial year, any addition has been made to any asset,  the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition. 

WDV (Pro-rata Method)= Dep for additional unit (Pro-rata depreciation Rate) = {1-(Scrap value of asset/Cost of asset)^(1/remaining useful life of asset)} x [Number of days from date of asset purchased till financial year-end/365] x 100 (WDV Method) 

SLM (Pro-rata Method)=  Annual Depreciation * [Number of days from date of asset purchased till financial year-end/365] x 100

The above is for calculating depreciation as per the Companies act. 

As per Tax act, depreciation is calculated at a full given rate if the asset is used for > 180 days 

or half rate of the given tax depreciation rate if the usage is <180 days. 

Finally, you can calculate your Deferred Tax liability.