Depreciation on Leased Assets As Per ITO,2001

[awaisaftab]

How the depreciation shall be charged, under ITO.2001, on assets which purchased on lease from banks and other financial institutions?
What is the concept of initial allowance? Is it applicable on leased assets?

Suppose a company has paid 300,000/-(25,000 per month although principal and interest varies in each installment but for simplicity we assume it) of principal amount of asset up to the year end and the total cost of asset is 1,050,000/-. At which amount the depreciation shall be charged?

Please quote relevant sections of income tax ordinance in the support of your views.

Best Regards
Awais Aftab

[m_zeeshanuddin_sa]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by awaisaftab</i>
<br />How the depreciation shall be charged, under ITO.2001, on assets which purchased on lease from banks and other financial institutions?
What is the concept of initial allowance? Is it applicable on leased assets?

Suppose a company has paid 300,000/-(25,000 per month although principal and interest varies in each installment but for simplicity we assume it) of principal amount of asset up to the year end and the total cost of asset is 1,050,000/-. At which amount the depreciation shall be charged?

Please quote relevant sections of income tax ordinance in the support of your views.

Best Regards
Awais Aftab
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Dear Awais,

Depriciation on Leased assets is not taken into account in regard with Income tax, since ITO treat every Lease as operating lease therefore Rentals are admisible completely. View Section 28(b) for details.

Initial allowance is an allowance offered to increase investment in eligible depriciable assets (the thinking behind this is to attract businesses to increase their capacities & productions which will contribute to GDP & will create jobs)

Any correction(s) are welcome
Regards,

[faisal_desperado]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by awaisaftab</i>
<br />How the depreciation shall be charged, under ITO.2001, on assets which purchased on lease from banks and other financial institutions?
What is the concept of initial allowance? Is it applicable on leased assets?

Suppose a company has paid 300,000/-(25,000 per month although principal and interest varies in each installment but for simplicity we assume it) of principal amount of asset up to the year end and the total cost of asset is 1,050,000/-. At which amount the depreciation shall be charged?

Please quote relevant sections of income tax ordinance in the support of your views.

Best Regards
Awais Aftab
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Dear Awais,
Zeeshan correctly mentioned, i.e only lease rentals will be allowable (Deducted to arrive at the taxable income) and any depreciation / initial allowance ( If admissible u/s 23 and part II of second schedule) be admissible to the lessor against lease rental income u/s 22(12), received by lessor.

<b>Initial allowance</b> is applicable on eligible depreciable assets only, subject to the conditions specified in section 23.
When Initial allowance is applicable on any asset, then it would not effect the liquidity position of the company i.e. company will(may) have sufficient liquid assets on the one hand, however it would have lower taxable income, due to higher depreciation ( Initial Allowance)on the other hand, lower taxable income means lower cash outflow in the form of taxation as per division 2 of part 1 of second schedule.
However this will be a taxable temporary difference, since due to initial allowance, deferred tax liablity shall arise and will be offset in future,



Best Regards,