Hey,
While signing my rent agreement, I came across leasehold improvements depreciation. I had no idea what this term meant. I conducted research on Google and found the following info.
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Is depreciation on leasehold improvements allowed under income tax act?Yes, depreciation on leasehold improvements is allowed under the Income Tax Act in India. Leasehold improvements are the changes made to a rented space to meet the needs of the tenant.eg installing new flooring, painting, and making structural changes.
According to the Income Tax Act, these improvements undergo a depreciation, as they have a limited lifespan.The improvements can only be depreciated if they are owned by the tenant and not the landlord.You can take a look at the table to know more.
Block of assets |
Depreciation allowance for AYs 2003-04 to 2005-06 |
Depreciation allowance for AY 2006-07 to AY 2017-18 |
Depreciation allowance for AY 2018-19 onwards |
Buildings which are used mainly for residential purposes except hotels and boarding houses |
5 % |
5 % |
5 % |
Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below |
10 % |
10 % |
10 % |
Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities under clause ( i ) of sub-section (4) of section 80-IA |
100 % |
100 % |
40 % |
Purely temporary erections such as wooden structures |
100 % |
100 % |
40 % |
Furniture and fittings including electrical fittings |
15 % |
10 % |
10 % |
Leasehold refers to a property tenure, where one party buys the right to occupy the property for a given length of time (30 to 99 years).Depreciation is a cost of owning an asset whose value is declining over time, so if it is leased, the lessee isn’t absorbing any of the cost of the depreciation. Like any other tangible asset, property value depreciates, according to Income Tax Act.
I also read online that “leasehold improvements are amortised, rather than being depreciated. This is because the actual ownership of the improvements is by the lessor, not the lessee. The lessee only has an intangible right to use the asset during the lease term.Though, on average the rate of depreciation shall be 40% if conditions of Rule 5(2) of the Income Tax Act are satisfied”.
This is all from my end on leasehold improvements depreciation.
Read more: Stamp Duty for Converting Leasehold Property to Freehold Property Who is the Landlord of a Leasehold Property? What is a leasehold property?Your Feedback Matters! How was this Answer?
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Is depreciation on leasehold improvements allowed under income tax act?
Anonymous
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2023-04-18T13:48:25+00:00 2023-04-26T10:34:43+00:00Comment
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