Hi friends, how are you?
I am your friend C.H.D.
Gupta and we were discussing Profit and Gain from Business
and Profession Head which is a short form because it takes
a lot of time to say it we will say it in short
P-G-B-P
he is saying PPPP son, PPPP is not a thing
P-G-B-P, you are making me say PPPP ok A very important
lecture, a very important topic and a very genuine topic
that we are discussing today within P-G-B-P, Head of Income
what is it?
friends, don't discuss anything
I will ask you a simple question today if you see, there is
a shock in cars and motorcycles
today, if you buy a car ok sir
the name of the car is Tata Harrier the car of my dreams, a
white Tata Harrier
today Tata Harrier comes in the market for 20 lakhs you are
returning from somewhere means the class you have taken
from me you have taken the class and you are ready for the
job and you got such a great job that within 6 months you
got so much money from the sky, Goddess Lakshmi started
raining money and you got so much money that you booked a
Tata Harrier car and you took its delivery
ok sir you came to me with that car and said sir come and
sit in my car
I said no bro, my cycle is better
I am a man who rides a cycle, how can I understand a car
ok, no problem sir now you tell me, you bought this car
today
then you took classes from me again, you started
understanding things
you got another good job you said that this Tata Harrier
doesn't suit my standard now I will sell this Tata Harrier
and buy a Mercedes and I will give lakhs of blessings to
Shrey sir because of whom I have reached this level
you went to the market and bought a Mercedes ok
Tata Harrier is standing in front of you
you bought a Mercedes and came to me again and said sir
come and sit in my car
I said no bro, I am a man who rides a cycle you said cycle
is better, now you are riding a cycle what can I do, time
is changing
I said ok, no problem now friends tell me, first you had a
Tata Harrier and now you have a Mercedes
you said that I don't have work for two cars
I will sell the Tata Harrier in the market how much did you
buy that car for? 20 lakhs?
you drove it for 6 months now tell me, when you go to the
market to sell that car will that 20 lakhs car sell for 20
lakhs?
answer is no it cannot sell 20 lakhs car will sell for a
little less than that it might sell for 17 lakhs, 16 lakhs,
18 lakhs
is the point clear?
I agree that it won't sell for that value why won't it
sell? because the value of that car has depreciated
that model might have become obsolete in 6 months its value
has become less
same example with the phone you bought an iPhone for 1 lakh
after 6 months you sell it, how much will it sell for?
it will sell for less
simple
should I give you another example? you will like your
brother-in-law for the first 6 months of the year
after a year, wife's value increases and brother-in-law's
value will depreciate another example you subscribed to
someone's new classes are you getting it?
you will like the teacher in the beginning and after 6
months, what will be the value of that teacher?
its value won't depreciate, it will depreciate but I am
still giving an example that its value will depreciate
today if you buy an asset and sell it in the market then
that asset won't sell in the upper half it will sell in the
lower half and it will sell because its value has become
less maybe the technology of your phone has become old
because new models are coming there is a lot of demand in
the market someone has become obsolete, wear and tear the
car has been thrown away a bumper has been
away
that thing won't sell at that value this is called
depreciation
is it an expense for you?
someone bought an asset worth 20 lakhs and you are selling
it for 17 lakhs where is 3 lakhs? what will you consider it?
what will you consider it? you have a loss in a way
you are selling it and you know clearly that you have
bought an asset worth 20 lakhs
I am selling it for 17 lakhs so I have a loss of 3 lakhs
suppose I don't sell that asset
I use it for 4-5 years after 5 years my asset may sell for
8 lakhs, 6 lakhs, or 10 lakhs
and suddenly the value of 20 lakhs comes to 10 lakhs
so what I do? Income tax says, don't suddenly reduce its
value you do one thing, slowly keep putting its expense in
your profit and loss account what is the name of that
expense? the name of that expense will remain, this is your
P&L account the name of that expense is depreciation that
every year the value of your asset out of that, the value
which keeps on decreasing, consider that as an expense that
you bought an asset worth 20 lakhs and after a year it has
become 18 lakhs its value has
by 2 lakhs, you haven't sold that asset yet you are using
it now but its value has not reduced so the government
says, the value that has reduced every year show it as
depreciation here, show it as your expense
depreciation expense is an allowable expense
what is it allowing? You are allowing it to be minused from
your income that is why it is an allowable expense
whatever profit you show, you can minus it as per income
tax people
and whatever profit you show, you can tax it this is the
concept of depreciation
is the point clear so far? now let's discuss some of its
conditions
Sir, tell me an ideal example the example I gave you of
Harrier
the depreciation imposed on Harrier it was a car worth 20
lakhs, I told you to sell that car in the market suppose
you haven't sold it, you have it you bought it for 20 lakhs
in the first year after a year its value is 17 lakhs what
is the value of 3 lakhs? depreciation now tell me one thing
who should get the depreciation expense? should the owner
get it or someone else? whose value is being reduced? it is
also possible that you have rented that Harrier car to
someone the person you have
it to, is only paying you the rent if he takes the expense
deduction he will deduct the expense of the rent or he will
deduct the expense of petrol
you are the owner you have a business of renting cars you
are receiving the rent on your income will you claim the
depreciation or not? who will claim the depreciation is the
question will you claim it as the owner or will the tenant
claim it? it is obvious the one who has a stick, has a
buffalo
every problem has a solution every effort has a result the
government has found the solution that the owner will claim
the depreciation so who will get it? the first condition is
that the owner will get it
the owner of the property the owner of the asset will get
the depreciation deduction
or else it will be a problem the one you have rented is
also using the asset he will say, I am using it, give it to
me
I want to reduce my profit
I need the expense you will say, the asset is mine
I have bought it, the value is being reduced there will be
a conflict between both the parties and if there is a
conflict between both the parties then both will go to the
government and say, government, there is a problem
the government will say, there is a solution to every
problem and in this world, when there is a solution to a
problem then there is a result of hard work that is why I
say, keep working hard sir, you are crossing the line sir,
these are very high level things, what do you know what do
you know about my value friends, people are standing in
line just to get a glance and an autograph come sir, who
will get it? the one who bought the car, the Harrier will
get this deduction condition number 2
you will get the expense only if you are using it for
business for example, the Harrier car, you are using it for
personal expenses you are using it for personal purposes it
is not used for business remember in the beginning, I told
you that the income which is not related to business,
remove it so the expense the depreciation is happening the
value of the car is decreasing, whether you use it for
personal purposes or you use it for business the value of
the car will decrease I am not reducing
value of the car by asking for it.
You are doing it for business.
You need the expense.
I am reducing the value.
You are doing it for personal.
I am reducing the value for personal.
It is not like that.
The value will be reduced.
But if you are using it for personal purposes, then you
cannot claim that expense.
This is logical.
If it is for business, then only you will get it for
business.
We are not allowing for personal expenses here.
Okay.
It should be for business.
Third, it should be put to use.
What is the meaning of put to use?
You are using it.
It is not like that you have parked the car in the garage.
And the value of the car has reduced.
And you are claiming the expense for no reason.
Use it for business.
Use it there.
Put to use.
It becomes a condition there.
Look at this point.
Can you see?
Sir, assume that I am a very rich person.
I am a very rich person.
I say that whatever net profit I will get, whatever my
profit is,
I will deposit the tax on it.
I don't need any expenses.
Expenses reduce my profit.
What are you saying?
I will show more profit.
I don't claim depreciation.
Sir, claiming depreciation is mandatory
and optional.
The answer is mandatory.
Sir, claiming this is mandatory.
You will have to take mandatory.
You will have to take depreciation.
You will have to reduce your profit.
Sir, tell me one thing.
You are doing depreciation and depreciation.
How much money do you get?
Look, the government sets a limit for everything.
If it is set unlimited, then what will every person do?
He will keep showing assets.
What will he buy?
He will keep taking invoices.
He will show in books that he has an asset.
He will say that 100% depreciation.
He bought an asset worth 1 crore.
I will claim depreciation of 1 crore.
The government said that we know that there can be fraud
here.
Whatever profit you will get, whatever is left here, you
will get depreciation equal to that.
If you set both of them, profit is zero.
Do you think we are like this?
Son, we have also played a lot in life.
We are running a government.
We are very smart.
We give lollipops to people like you.
So the government said, do one thing.
You buy an asset. You run your business.
You become the owner of that asset.
You put it to use.
But we will give a specified percentage that up to this
percentage, you will get depreciation.
Asset is worth 1 crore.
The government said that we will give depreciation of 15%.
So every year you will get depreciation of 15% on that
asset.
Until that asset is not sold.
As long as you are using that asset, according to that
percentage, there is a cost to use it.
If you are using that asset, there is a cost to use it.
You will get depreciation of 15%.
You are getting deduction of that in your Profit and Loss
account.
It is mandatory.
Sir, what percentage should be used?
It should be used on WDV.
What is it? I will tell you later.
It is used on WDV value.
Observe this thing in this lecture.
We have discussed depreciation.
What is depreciation?
Our value decreases.
Value of new car, new master, new brother-in-law, new
iPhone, all these values decrease.
I am using that asset.
Its value decreases.
So there is a cost to use it.
I will give deduction of that.
According to a specified percentage, deduction is given.
On which? On WDV.
What are the rates? What is WDV?
If I sell the asset, what will happen?
We will discuss it in the next lecture.
Thank you very much.