Depreciation Meant For Tax Purposes

If the companies want to report to the shareholders, they can charge reduction either through down value method or straight line method. However, the companies are not offered any choice of depreciation process and rates for tax. Depreciation is permitted as a deduction each year on the basis of written down value in respect to the fixed benefits as per the charges prescribed in the rules of income tax.  Reduction is calculated on the basis of the written value of the assets. These assets means a collection of assets included in the class of assets, machinery plant, building depending on which some fraction of depreciation is laid down.
There are various things comprised in the block assets among which one of the popular things is Ocean going ships. For instance, machines and plant has been separated into three separate blocks with different rates of depreciation which are 25%, 100% and 50%. Most of the machines and plants come under the 25reciation slab. Land is not offered any kind of depreciation.


Base of Depreciation

As far as block assets are concerned, the down value is computed as follows:

1.    The total amount of the written value of all the assets contained in the block assets at the initial stage of the year.

2.    This amount is added with the proceedings emerged from the transaction of any of the assets present in the block in the year.

3.    The amount thus received is then subtracted from the proceedings achieved by the auction of the asset.

Thus, we can say that the reduction of an asset= charge of the equipment+ written value of the old tool- saving cost of the old tool.

Relation between Taxes and Depreciation

The calculation of the cash flow needs a cautious management of not so costly item like depreciation. Reduction or depreciation can be explained as an allocation of charges for an asset. It includes an access to accounting and it does not need any outflow of cash. The outflow of the cash takes place during the time of obtaining the assets. According to the rule of income tax, depreciation is a deductible expenditure for calculating the taxes. Depreciation does not have a direct effect on the cash outflow, but it indirectly contr