Accounting Treatment of Depreciation in respect of acquired Fixed Assets on Govt.Grant/Subsidy in Non profit organisation

For FY 2025-26, assuming the Section 8 company follows Accounting Standards (AS) and not Ind AS, the treatment is:

1. Books of account - AS 12: Since the Rs. 1 crore Government grant relates specifically to acquisition of a depreciable fixed asset costing Rs. 1.50 crore, AS 12 permits the deferred income method. If the Rs. 1 crore is shown as deferred government grant on the liability side, the fixed asset may continue at its gross cost of Rs. 1.50 crore.
2. Depreciation: Depreciation is charged on the full book cost of Rs. 1.50 crore, based on the applicable useful life/method.
3. Grant income: The Rs. 1 crore deferred grant should be recognised in the Income & Expenditure Account systematically over the useful life of the asset, in the same proportion/periods in which depreciation is charged.

Example: If useful life is 10 years:

3. • Depreciation = Rs. 15 lakh p.a.
   • Grant income = Rs. 10 lakh p.a.
   • Net impact on I&E = Rs. 5 lakh expense.
4. Tax/ICDS VII: For tax computation, the treatment is different. A Government grant/subsidy specifically related to acquisition of the asset is generally reduced from the actual cost/WDV. Thus, tax cost would be Rs. 1.50 crore - Rs. 1 crore = Rs. 50 lakh, subject to the exact grant terms and applicable provisions.
5. Therefore, book depreciation and tax depreciation may differ, requiring appropriate tax reconciliation and, where applicable, deferred-tax consideration.
6. For a Section 8/NPO, the Section 11 charitable exemption implications must be examined separately; AS 12/ICDS VII treatment alone does not determine whether the grant or depreciation constitutes income/application for Section 11 purposes.

Conclusion: On the stated facts, retain Rs. 1.50 crore as the book asset, charge book depreciation on Rs. 1.50 crore, and release the Rs. 1 crore deferred grant to I&E systematically over the asset's useful life. For tax purposes, separately reduce the grant from the tax cost under the applicable provisions/ICDS VII.