09-20-2008, 08:36 PM
Dear A.S.,
Tax depreciation is provided on fixed assets after providing for initial allowance. Initial allowance is provided only for the first year of operation on certain fixed assets that have been prescribed in Section 23 of the Income Tax Ordinance, 2001 as eligible depreciable assets. First year of operation means the first year in which asset has been used for business or the tax year in which commercial production has been started.
Rate of initial allowance is 50%. The rate of 90% has been stipulated by Finance Act,2008 only for those industrial undertaking which are to be set up in prescribed rural and under developed areas.
After providing initial allownance depreciation will also be charged under section 22 of the ITO 2001. Depreciation rates and initial allowance rates are given in Part I and Part II of Third Schedule to the ITO 2001 respectively.
I recommend you to study section 23, 22, 76 and third schedule to the Income Tax Ordinance 2001 for further clarity.
For accounting purpose you have to assess the usefull lives of the assets and their depreciable amounts (cost less residual value, if any). Depreciation rate would be the rate which will charge off the depreciable amount to profit and loss account spanning over the useful life so determined. This is a technical question and normally people adopt tax depreciation rates for accounting purpose as well. This helps them reducing accounting and tax profit gaps and minimizing resulting tax implications and deferred tax consequences.
Hope you have been answered.
Regards,
KAMRAN.
Tax depreciation is provided on fixed assets after providing for initial allowance. Initial allowance is provided only for the first year of operation on certain fixed assets that have been prescribed in Section 23 of the Income Tax Ordinance, 2001 as eligible depreciable assets. First year of operation means the first year in which asset has been used for business or the tax year in which commercial production has been started.
Rate of initial allowance is 50%. The rate of 90% has been stipulated by Finance Act,2008 only for those industrial undertaking which are to be set up in prescribed rural and under developed areas.
After providing initial allownance depreciation will also be charged under section 22 of the ITO 2001. Depreciation rates and initial allowance rates are given in Part I and Part II of Third Schedule to the ITO 2001 respectively.
I recommend you to study section 23, 22, 76 and third schedule to the Income Tax Ordinance 2001 for further clarity.
For accounting purpose you have to assess the usefull lives of the assets and their depreciable amounts (cost less residual value, if any). Depreciation rate would be the rate which will charge off the depreciable amount to profit and loss account spanning over the useful life so determined. This is a technical question and normally people adopt tax depreciation rates for accounting purpose as well. This helps them reducing accounting and tax profit gaps and minimizing resulting tax implications and deferred tax consequences.
Hope you have been answered.
Regards,
KAMRAN.
