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CA Intermediate · Taxation · Profits and Gains of Business or Profession

Kaveri Engineering has a block of plant and machinery eligible for depreciation at 15%, with an opening written down value of ₹10,00,000 on 1 April 2026. During tax year 2026-27 it sold one asset of this block for ₹2,40,000 and purchased and put to use new machinery of the same block costing ₹4,00,000 on 1 December 2026. What is the depreciation allowable for the tax year?

Depreciation is ₹1,44,000. The opening block value is reduced by the sale proceeds to ₹7,60,000, which earns 15%, or ₹1,14,000. The machinery bought on 1 December was used for less than 180 days, so it earns only 7.5% on ₹4,00,000, or ₹30,000.

  1. A₹1,74,000
  2. B₹1,44,000Correct
  3. C₹1,80,000
  4. D₹1,14,000

Explanation

The asset was put to use for fewer than 180 days, so the addition gets half the rate (7.5%). The opening WDV is reduced by the sale proceeds: ₹10,00,000 − ₹2,40,000 = ₹7,60,000, and 15% of that is ₹1,14,000. The addition of ₹4,00,000 at 7.5% is ₹30,000. Total = ₹1,44,000. Using the full rate on the addition gives ₹1,74,000, which is wrong.

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