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

Sundaram Textiles Pvt Ltd has a block of plant and machinery eligible for depreciation at 15%. The written down value of the block on 1 April 2026 was ₹10,00,000. On 5 June 2026 it bought a new machine for ₹4,00,000 and put it to use on 20 June 2026. On 10 January 2027 it sold an old machine of the same block for ₹2,00,000. Ignore additional depreciation. What is the depreciation allowable for tax year 2026-27 on this block?

Allowable depreciation is ₹1,80,000. The new machine was used for more than 180 days, so full rate applies. The block value is ₹10,00,000 plus ₹4,00,000 addition less ₹2,00,000 sale proceeds, which is ₹12,00,000, and 15% of that equals ₹1,80,000.

  1. A₹1,80,000Correct
  2. B₹1,50,000
  3. C₹2,10,000
  4. D₹1,20,000

Explanation

The new machine was used for more than 180 days (20 June 2026 to 31 March 2027), so full-rate depreciation applies. WDV for depreciation = 10,00,000 + 4,00,000 − 2,00,000 = ₹12,00,000, and 15% of this is ₹1,80,000. Using half rate on the addition gives ₹1,50,000, which is wrong because the 180-day test is met. Ignoring the sale gives ₹2,10,000, and ignoring the addition gives ₹1,20,000.

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