Schedule-2 Determination of Depreciation Deduction (Related to Section 19)

1. Classification and grouping of depreciable property

(1) Depreciable property shall be classified as follows:-

(2) Any person shall, at the time when any depreciable property used for earning income from a business or investment comes into ownership or is first used in any income year, place it in the following groups; and such groups shall be deemed to be the groups of depreciable property of that person in that year:-

(a) Depreciable property of Class A, B, C or D under the same class as other property of the same class already under ownership or use of that person shall be placed in the same group as such other property, and

(b) In respect of depreciable property of Class E, even if the properties are of the same class, they shall be placed in separate groups.

(3) The cost incurred for the extraction of natural resources, mining operations and development related thereto, in the course of earning income from business, shall be treated as the cost of acquiring property for the business related to such income.

2. Depreciation expenses

(1) Any person may, in any income year, deduct expenses equal to the depreciation of the property in each group computed pursuant to sub-sections (2) and (6) of this Section for the groups of depreciable property of that person.

(2) Any person shall compute the depreciation deduction of property in a group in any income year using the following formula: A x B

where "A" denotes the depreciation base amount of the property group at the end of that income year, and "B" denotes the depreciation rate applicable to that group pursuant to Section 3 of this Schedule.

(3) The depreciation base amount of the depreciable property of Class A, B, C or D at the end of any income year shall be computed by subtracting the amount of clause (c) from the sum of the amounts of clauses (a) and (b):

Provided that the amount after such subtraction shall not be less than zero:-

(a) The amount remaining after deducting the depreciation expenses computed pursuant to sub-sections (2) and (6) for that group from the depreciation base amount of that group at the end of the previous year,

(b) The cost added to the depreciation base amount of that group in that income year for the property added to that group during that income year, pursuant to sub-section (5) of this Schedule, and

(c) Any amount received from the disposal of any property of that group in that year.

(4) The depreciation base amount of each depreciable property of Class E at the end of any income year shall be the sum total of the following amounts:-

(a) Depreciation base amount of depreciable property in the group at the end of the previous income year, and

(b) The cost added pursuant to sub-section (5) for the property in the group in that income year.

(5) The cost incurred for any depreciable property included in any group of depreciable property of any person shall be added to the depreciation base amount of the relevant group as follows:-

(a) At the later of: the time of placement in the group pursuant to Section 1 of this Schedule, or the time at which cost for acquiring that property is incurred - whichever comes later, by computing the first value using the following formula and adding it:- A/3 x B

For the purposes of this clause,

"A" shall have the following value for the following periods:-

(i) For the period from the beginning of the income year to the end of Poush (mid-January): three,

(ii) For the period between Magh and the end of Chaitra (mid-January to mid-April): two, and

(iii) For the period from Baisakh to the end of the income year (mid-April to mid-July): one.

"B" denotes the cost amount.

(b) The remaining portion of the cost shall be added in the income year following the income year in which the first portion was added, provided that the group has not been dissolved in the intervening period pursuant to sub-section (2) of Section 4 of this Schedule.

(6) If, after deducting the depreciation expenses computed pursuant to sub-section (2) of this Section from the depreciation base amount of the property of Class A, B, C or D groups, the remaining amount is less than two thousand rupees, the entire remaining amount shall be computed as additional depreciation expenses.

3. Rate of depreciation

(1) Subject to sub-section (2), the applicable depreciation rate for each group mentioned in sub-section (2) of Section 2 of this Schedule shall be as follows:-

(2) The projects mentioned in sub-section (2) of Section 19 of the Act, and the entities mentioned in sub-sections (2b), (3c) and (3t) of Section 11 of the Act, shall be entitled to an additional one-third of the depreciation rate applicable to the depreciable property of Classes A, B, C and D mentioned in sub-section (1) of this Schedule.

(3) Any person may, in a single year, claim as depreciation expenses fifty percent of the capital amount invested in property required for the production of energy from renewable sources for own business use.

(4) If any person keeps a fiscal printer and cash machine and issues bills and invoices thereon, the entire cost incurred on such printer and cash machine may be claimed as depreciation expenses in that year.

4. Disposal of depreciable property

(1) In computing the income from the disposal of depreciable property used in the business or investment of any person in any income year, if the amount in clause (a) exceeds the amount in clause (b), the excess shall be included in that income:-

(a) Income received in that year from the disposal of depreciable property of any person in Class A, B, C or D groups, and

(b) The depreciation base amount of that group at the end of that year computed pursuant to sub-section (3) of Section 2 of this Schedule without including the income from disposal.

(2) If any person disposes of all the property in a group of depreciable property before the end of any income year, the group shall be deemed to have been dissolved, and it shall be as follows:-

(a) If the depreciation deduction amount computed by the following formula for the property in the group of depreciable property exceeds the depreciation base amount of the group, that person shall be deemed to have received the amount of such excess for that year:- A - B

or

(b) If the amount computed by the following formula for the property in the group of depreciable property exceeds the depreciation base amount of the group, that person shall be entitled to remission of such excess cost amount for that year: B - A

Explanation: For the purposes of this Section,-

(1) "A" means the incomings received or to be received by any person from the disposal of such property in that year.

(2) "B" means the sum total of the amounts of sub-clauses (i), (ii) and (iii):-

(i) The declining balance value of the group in that year,

(ii) The outgoings for property in the group added to the depreciation base amount of the group in that year, and

(iii) The outgoings to be added to the depreciation base amount of the group in the following year pursuant to sub-section (5) of Section 2 of this Schedule.

(3) For the purposes of this Schedule, the declining balance value of a group of depreciable property in any income year means:-

(a) In the case of Class A, B, C or D, the amount remaining after deducting any depreciation computed pursuant to sub-sections (2) and (6) of Section 2 of this Schedule for that year from the depreciation base amount of that group at the end of the previous income year, and

(b) In the case of Class E, the amount remaining after deducting all past-year expenses allowed to be deducted pursuant to sub-section (1) of Section 2 of this Schedule from the depreciation base amount of that group at the end of the previous income year.

Schedule 2 - depreciation mechanics & special rates (Sec 19):

Pools - Classes A-D group all assets of the same class together; each Class E intangible is a SEPARATE pool.

Depreciation = year-end pool base × rate, where base = prior-year base + additions − disposal proceeds (never below zero).

Additions enter at A/3 × cost (A = 3 if acquired Shrawan-Poush, 2 if Magh-Chaitra, 1 if Baisakh-Ashad); the remaining cost is added the next year.

Rates: A 5%, B 25%, C 20%, D 15%, E = cost ÷ useful life.

ACCELERATED (3(2)): Sec 19(2) BOT/power projects and Sec 11(2b)/(3c)/(3t) entities (special industry, IT/industrial parks) get an extra one-third of the A-D rate.

SPECIAL one-year write-offs: 50% of the cost of renewable-energy plant for own business use (3(3)); 100% of the cost of a fiscal printer / cash machine that issues bills (3(4)).

If a pool's balance falls below Rs. 2,000 after depreciation, the entire remainder is written off that year (2(6))