Depreciation is the topic of our discussion and we will
continue our discussion on it.
Sir, I told you what is depreciation in the last lecture
and how it is allowed here.
It is allowed here according to a specified percentage.
Now, how to apply the percentage and on what value that
percentage has to be applied, we will discuss that today.
Sir, in depreciation, first of all, the income tax says
that you will put all depreciation in your books.
For example, you have made a profit and loss account.
You have made a P&L account.
You have shown your sales here.
You have shown your gross profit here, for example.
Okay? Now, you put depreciation here.
Okay? You put depreciation.
You put depreciation.
Suppose, this is a P&L company.
This is a P&L company.
So, P&L company has to tell that the depreciation rates
will be applied under the Companies Act.
Which rates will be applied?
The rates of Companies Act will be applied.
But when will it be applied?
When it will enter in its books of accounts.
When it will do accounting.
When it will do accounting, then the rates of Companies Act
will be applied.
Are we under the Companies Act?
Who are we?
We are under the Income Tax Act.
Which rates will we apply?
Which are written in the Income Tax Act.
Who are we?
We are tax people.
So, we will apply the rates of the Income Tax Act.
Okay? There are the rates of the Companies Act.
Here are the rates of the Income Tax.
Will there be a difference between the two?
Obviously, because the rates are also different.
There will be a difference.
Here, you have taken the expense.
Now, it is possible, you have told Rs.100, that I am taking
depreciation in Rs.100.
Rs.100 is the expense of my depreciation.
From this amount, reduce my profit.
But, what will the Income Tax people say?
It is possible, according to their calculation, according
to the calculation of the Income Tax people, suppose, this
figure comes out,
Rs.140.
Here, it is Rs.100.
Here, it is Rs.140.
There is a little difference here.
So, that is why, as a rule, assume this as a rule, that I
had told you, that we make some adjustments in the net
profit.
So, you take your simple net profit, whatever is coming in
your books.
In that net profit, you add back the depreciation that you
have applied in the Companies Act.
This one.
You add back this one here.
What is the effect of this?
The expense that you have taken in your books, add that
expense back to the net profit.
Remove that expense from there.
If I would not have done that expense, then how much would
be my net profit?
So, once you have removed that expense, your net profit
will increase a little.
In this increased net profit, is depreciation included now?
It is not included, because I have removed depreciation and
added it.
What will the Income Tax people say?
It is our responsibility to give depreciation.
Whatever you have done in your books, we do not care about
that.
You remove that thing.
And the depreciation rate that we are telling, we will
allow you only that much.
If we have told 140, then here, as per the Income Tax Act,
reduce it to 140.