Depreciation for Second hand machinery purchased

[Ramanathan Seshan]

Dear Experts,

Hope this message finds you well.

I am seeking clarification regarding the charge of depreciation in the context of a transaction between Company A and Company B. Here’s the scenario:

Company A purchases machinery from Company B and it has been using it for three years. As per the management policy of the company A a similar asset has a useful life of 5 years.

With reference to the above, I would like to understand the following:

a) Should we now account for the depreciation for 2 years only as per the IT depreciation rate?

b) What can be other possible way to harvest tax if we want to keep account for depreciation for 5 years under IT Act?

Thanks in advance

Best Regards,

S Ram

AI Summary

Depreciation under Income Tax Act: calculated on written down value, not internal useful life; block and accelerated deductions may apply.
Depreciation is computed under the Income Tax Act on the written down value using prescribed rates; a purchaser of second hand machinery continues depreciation from the next year on the asset's WDV irrespective of the acquirer's internal useful life estimate. Machinery is generally depreciated as part of a block of assets, with depreciation calculated at block level. Tax optimisation options include relying on block treatment, applying higher statutory rates where eligible, claiming investment linked immediate deductions when available, capitalising improvements and depreciating those additions, or recognising capital loss on disposal.