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DEPRECIATION ON MOBILE PHONE
Depreciation on Mobile Phones is an allowable expense in Income Tax Act, 1961. The depreciation rate on Mobile Phones according to the Income Tax Act of 1961 is 15% on WDV (Written Down Value). Mobile phones are not computers and, therefore, depreciation on these mobile phones shall be allowed at the general rate of depreciation on plant and machinery @ 15%.
The tribunal in the case of M/s. Falcon Business Resources Pvt. Ltd. VS. DCIT, held that they have carefully considered the rival contentions and perused the orders of the lower authorities. The lower authorities while deciding the issue whether the depreciation is allowable on mobile phones @ 15% or considering the mobile phones computers @ 60%.
This issue has been decided by the solitary decision of Hon’ble Kerala High Court in the case of Federal Bank Ltd. Vs. ACIT (supra) wherein it has been held that mobile phones are not computers and, therefore, depreciation on these mobile phones shall be allowed at the general rate of depreciation on plant and machinery @ 15%. This being the solitary decision on the issue and is binding on the court, respectfully following that we uphold that depreciation on mobile phones is allowable @ 15% and not @ 60%.
However, we may note that there are smartphones which do function equivalent to computers or much more than a computer, if the functionality of a mobile phone are shown to be more than communication equipment, perhaps, it may qualify as a computer. However, as no such information is available in the present case, we respectfully follow the decision of the Hon’ble Kerala High Court in the case of Federal Bank Ltd. Vs. ACIT (supra) and dismiss the appeal of the assessee.
Various types of Assets are used in the business, Some of them are permanent in nature, such as buildings, machines, furniture, plant, typewriter, computer, mobile phones etc.
These Assets are used continuously for many years in business, Due to the continuous use of these assets, wear and tear, expected obsolescence, exhaustion of the original substance, and falling market value permanently, the gradual and permanent decline in the value of these assets is called depreciation.
“The gradual and permanent decrease in the value of fixed assets due to normal wear and tear; passes of time and expected obsolescence in technology, known as depreciation”.
Causes of depreciation
- Continuous use of assets
- Due to wear and tear of assets
- Due to Accidents
- Due to the obsolescence of assets (change in technology)
- Because of the elimination of the original substance
- Due to market prices falling permanently
- passes of time
Objectives of Charging depreciation
- To determine the correct net profit/ loss
- For preventing a shortage of capital
- To show the true and fair value of assets in the balance sheet.
- The facility in replacement of new Assets/property
- To avail of income tax exemption
- For ascertaining the true cost of production
- To meet the legal requirements
DEPRECIATION ON MOBILE PHONES EXAMPLE
On 1st April 2022 ‘X’ Company Limited purchased 20 Mobile Phones @ 20,000 each for the purpose of internal communication of employees. Depreciation Charged @ 15% on WDV. Books are closed every year on 31st March. Pass Journal entries in the Books of the Company.
JOURNAL ENTRIES FOR CHARGING DEPRECIATION ON MOBILE PHONES
FIND CURRENT DEPRECIATION ON MOBILE PHONE
To find the current depreciation rates as per the Income Tax Act of India, including mobile phone depreciation rates, you can follow these steps:
- Visit the official website of the Income Tax Department of India: https://www.incometaxindia.gov.in/.
- Look for the search bar on the website. It may be located at the top right corner or in the main menu.
- Type “depreciation rates” in the search bar and click on the “Search” button.
- The search results should provide you with relevant links or documents related to depreciation rates. Look for the one that specifically mentions depreciation rates for different categories of assets, including mobile phones.
- Click on the link or document to access the details of the depreciation rates.
Remember to verify the information and ensure that you are referring to the latest guidelines provided by the Income Tax Department. Tax laws and rates can be subject to changes, so it’s important to stay updated with official sources.
Also Read: Depreciation journal Entry