Section 33 Deduction for depreciation.

Income-tax Act, 2025 [As Passed]

Statutory Provision Mode

Text & Scope

Clause 33 of the Income Tax Bill, 2025 (Old Version) provides for deduction in respect of depreciation for assets used in the business or profession. It covers both tangible assets (buildings, machinery, plant, furniture) and intangible assets (know-how, patents, copyrights, trademarks, licences, franchises or similar business/commercial rights), expressly excluding goodwill. The deduction applies to assets "owned wholly or partly by the assessee and used wholly and exclusively for the purposes of the business or profession." The clause sets out special rules for undertakings engaged in generation or generation and distribution of power, rules for blocks of assets, proportionate restriction where assets are partly used, limits when actual cost is allowed u/s 54, a 50% restriction for assets acquired and used for less than 180 days during the tax year, treatment in cases of succession/amalgamation/demerger, leasehold improvements, additional deduction for new machinery/plant in certain businesses, allowance on shortfall between WDV and sale/scrap proceeds, carry-forward of disallowed depreciation, and definitions including "assets," "know-how" and "sold."

Interpretation

The clause employs common tax-law constructs: depreciation allowances are determined at prescribed percentages (for blocks and for certain power undertakings), pro rata allocation where assets move between related entities, and ceilings when assets are used for part of a year. Legislative intent, as expressed, is to allow systematic write-downs on capital assets used in business, while providing enhanced incentives (additional deduction) for acquisition and installation of qualifying new plant and machinery used in manufacturing or power businesses. The Bill treats depreciation as a statutory deduction determined by prescribed rates and subject to limiting conditions (usage, prior allowances, reorganisation rules). No extrinsic legislative history or purpose beyond the text is stated in the document.

Exceptions/Provisos

The text contains several carve-outs and conditions:

• Intangible assets: Goodwill is excluded from depreciation.
• Section 54 interaction: Where deduction of actual cost for machinery/plant is allowed u/s 54, no deduction under Clause 33(3)(c) is allowed.
• Short-use restriction: Where an asset is acquired and put to use for less than 180 days in the tax year, the general deduction rate is halved (50% restriction) as detailed in sub-section (4).
• Additional deduction for new machinery/plant is subject to multiple conditions, including nature of business (manufacturing/production or power), first use by the assessee, non-use by any other person earlier, not being ship/aircraft/office appliances/road transport vehicle/office premises/residential accommodation, and not being of a class where whole cost is fully deductible.
• Where profits before depreciation are less than allowable depreciation, the deduction is limited (no deduction if profits are a loss); unallowed amounts are carried forward to succeeding years with specified deemed treatment.

Illustrations

• Example 1: A manufacturing assessee purchases and installs qualifying new machinery on 1 July in the tax year and uses it wholly in the trade. If used for >180 days that year, the assessee is entitled to normal depreciation at prescribed rate plus an additional deduction equal to 20% of actual cost in the year of acquisition (subject to all qualifying conditions being met).
• Example 2: A company acquires a building in October and it is used for business for less than 180 days in that tax year. Depreciation allowed for that year is limited to 50% of the prescribed rate applicable to such asset.
• Example 3: On amalgamation, the aggregate depreciation claim by amalgamating and amalgamated company is to be allowed on a pro rata basis based on days of use by each; in this Bill text the allowable deduction calculated at prescribed rates "shall be allowed on pro rata basis."

Interplay

Clause 33 cross-references other statutory provisions: section 54 (for exclusion where actual cost deduction already allowed), section 70(1)(zd)/(ze)/(zf) and section 313 (for successions), and section 41(1) (for definition of written down value - parenthesis references a table entry). It also subjects the carry-forward rule to sections 112(3) and 113(4). No Rules or Notifications are expressly referenced in the Old Version beyond these section cross-references. Any interaction with tax rates "as prescribed" indicates subordinate legislation or rules will determine percentages; those prescriptions are not contained in the Bill text.

Differences between Section 33 of the Income-tax Act, 2025 [As Passed] and Clause 33 of the Income Tax Bill, 2025 (Old Version)

• Wording and Terminology: The As Passed version (Section 33) uses the phrase "Deduction for depreciation" and repeatedly refers to "deduction" throughout. The Old Version (Clause 33) alternates between "deduction" and the term "depreciation" in provisions (e.g., sub-sections (2), (3)(a), (10), (11)).
  • Practical impact: Possible drafting inconsistency in the Bill that may affect interpretation of whether a provision addresses the allowable deduction or the accounting concept of depreciation; the As Passed text standardises on "deduction."
• Scope of assets in sub-section (1)(b): Clause 33 (Old Version) omits the specific temporal phrase present in Section 33 (As Passed) that the intangible assets are "acquired on or after the 1st April, 1998."
  • Practical impact: The As Passed text narrows the applicability of depreciation deduction for intangibles to those acquired on or after 1 April 1998; the Bill's Old Version (by omission) would read more broadly unless another provision elsewhere limits it. This is a material substantive change if the omission in the Bill were retained.
• Sub-section cross-references and coverage in clause (3)/(4): In the Old Version, sub-section (4) restricts the deduction when asset is referred to in "sub-sections (1), (2) and (8)." In the As Passed version, sub-section (4) restricts the deduction if such asset is "being asset referred to in sub-sections (2) and (3)."
  • Practical impact: The set of assets qualifying for the 50% restriction differs between the drafts. The Bill would have applied limitation additionally to assets in sub-section (1) and (8); the As Passed version applies it to assets under (2) and (3). This changes which new/particular categories (e.g., new plant under (8)) get the half-rate limitation when used <180 days or acquired in the year.
• Proviso on block of assets wording: Clause 33(3)(b) refers to "any asset forming part of the block of assets" and restricts "deduction allowable" to proportionate part determined by AO. In Section 33(3)(b) the As Passed text refers to "when any building, machinery, plant or furniture is partly, or not wholly and exclusively, used... the deduction under clause (a) shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer."
  • Practical impact: As Passed emphasizes particular tangible asset categories, whereas the Bill language is broader (any asset forming part of block). Possible interpretive impact on whether intangible assets in block could be subject to the same proportionate restriction under Clause 33 Bill language; As Passed confines it to tangible categories listed.
• Succession/amalgamation/demerger aggregation rule (sub-section (5)): The As Passed text caps aggregate deduction for predecessor and successor (or amalgamating / amalgamated etc.) not to exceed deduction calculated at prescribed rates "as if the succession, amalgamation or demerger had not taken place," and specifies pro rata allocation. The Old Version states the allowable deduction calculated at prescribed rates "shall be allowed on pro rata basis" and lists the parties.
  • Practical impact: The As Passed expressly places a ceiling (shall not exceed) the deduction calculated as if reorganisation had not occurred; the Bill reads as an entitlement but lacks the explicit "shall not exceed" ceiling language. This may affect aggregate deduction in reorganisations - the As Passed expressly prevents duplication of full deductions among entities post-reorganisation.
• Sub-section numbering and structural variations (sub-section 8-11): The Old Version uses different sequencing and slightly different phrasing for the additional deduction for new machinery (sub-section (8) and (9)) and the carry-forward rules for unallowed depreciation (sub-section (11)). The As Passed consolidates and clarifies some conditions (for example, additional deduction prohibitions list in (8)(d) differs in ordering and phrasing).
  • Practical impact: Differences are largely drafting refinements but could change scope: for instance, As Passed explicitly excludes assets "on which the whole of the actual cost is allowed as a deduction" (wording differs marginally from Old Version clause (8)(v)).
• Definitions and cross-references (sub-section (12) and related): Clause 33(12)(d) in Old Version defines "written down value of the block of assets" with a parenthetical "(Table: Sl. No. 3)" appended to section 41(1). The As Passed references section 41(1)(c) instead.
  • Practical impact: Different cross-reference points in section 41 may alter the technical definition relied upon; this affects the computation base for written down value. The As Passed uses clause (c) whereas the Bill pointed to a table entry - potentially reconcilable but notable for practitioners verifying the exact definition source.
• Minor drafting and consistency changes: Several clauses in the Old Version include slightly different sequencing of sub-clauses and different connective words (e.g., "further sum in addition" vs. "additional deduction," "money payable" vs. "moneys payable") whereas the As Passed uses more formalised terms.
  • Practical impact: Mostly interpretive clarity and internal consistency; the As Passed tends to be more precise in limiting and defining scope.

Practical Implications

• Compliance and risk areas: Taxpayers must track date-of-acquisition and days of use in the tax year (to ascertain applicability of 50% restriction and staged additional deduction). They must ensure whether machinery/plant has attracted any deduction u/s 54 to avoid double claims. In reorganisations, careful apportionment and proof of days of use will be required to claim pro rata depreciation.
• Record-keeping/evidence: Maintain acquisition invoices, installation records, first-use certificates, books evidencing write-offs, lease agreements and details of capital expenditure on leasehold/improvements, and records showing whether an asset was used previously by another person (for additional deduction eligibility).

Key Takeaways

• Clause 33 provides detailed statutory rules for depreciation deductions on tangible and intangible assets used in business, excluding goodwill.
• Special provisions apply to power-generation undertakings, blocks of assets, short-period use (<180 days) and newly acquired plant and machinery.
• Additional deduction (20% or 10%) is available for qualifying new machinery/plant subject to several conditions intended to target manufacturing and power businesses.
• Reorganisation events (succession, amalgamation, demerger) require pro rata allocation of depreciation between entities; the Bill text frames the pro rata allowance but differs in ceiling language from the As Passed text.
• Carry-forward rules limit immediate claim where profits are insufficient, with unallowed amounts added and treated as depreciation in succeeding years subject to other sections.
• Definitions of "assets," "know-how" and "sold" are specified; "written down value" is cross-referenced to section 41(1) (table reference in the Bill).
• Prescribed rates determine many computations; absence of those prescriptions in the Bill requires reference to rules/regulations once issued.

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Full Text:

Section 33 Deduction for depreciation.

Deduction for depreciation: statutory framework limits and special incentives for qualifying business assets under the tax code. Section 33 provides for deduction for depreciation on tangible and specified intangible assets used wholly and exclusively for business or profession, excluding goodwill; it prescribes computation by blocks and prescribed rates, applies special rules for power undertakings and leasehold improvements, imposes a 50% restriction for assets first used less than 180 days, allows an additional first-year deduction for qualifying new plant and machinery subject to strict conditions, and prescribes pro rata allocation and ceilings on claims in succession, amalgamation or demerger with carry-forward rules for unallowed depreciation.