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Alerts:

Tax Alert: Enhanced Depreciation – A shot in the arm for auto industry

23 September 2019

The growth rate of Indian Economy is a concern and auto Industry is no exception to it. In order to boost the demand, Government of India had, inter-alia, announced following specific measure for the automotive industry:

  1. BS IV vehicles purchased till 31 March 2020 will remain operational for the entire period of registration
  2. Revision of one-time registration fees deferred till June 2020
  3. Higher depreciation for all the vehicles
  4. Setting up of infrastructure for development of ancillaries / components including batteries for export
  5. Lifting of ban on purchase of new vehicles for replacing old vehicles by various Government Departments, etc.

Furthermore, vide notification no. 69/2019/F.No. 370142/17/2019-TPL dated 20 September 2019, the Central Board of Direct Taxes (CBDT) has enhanced the depreciation rates applicable to motor cars / motor buses / motor lorries / motor taxis purchased during the period 23 August 2019 to 31 March 2020.

The existing and new notified rates of depreciation are tabulated hereunder:

Sr. No.

Particulars

Depreciation rates

Existing Rates

Acquired & Put to use on or after 23 August 2019 but before 1 April 2020

1

Motor cars, other than those used in a business of running them on hire

15%

30%

2

Motor buses, motor lorries and motor taxis used in a business of running them on hire

30%

45%

 

BDO Comments

As announced by Finance Minister in August 2019, the notification does provide higher depreciation. The decision to lift the ban on Government Department to purchase new vehicles coupled with enhanced rate of depreciation and clarity on BS IV registration should boost the demand for automobile industry.

It is imperative to note that Rule 5 of the Income-tax Rules, 1962 (‘the IT Rules’) provides that where the Company is claiming benefit of concessional corporate tax rate of 25% under section 115BA of the Income-tax Act, 1961 (‘the IT Act’), being a new manufacturing company, the maximum depreciation rate cannot exceed 40%. While this Notification has made amendments in Depreciation chart, corresponding amendment is not made in Rule 5 of the IT Rules. Thus, for cases falling in (2) above, the depreciation rate could be limited to 40% instead of 45%. A timely clarification in this regard will be highly appreciated.