## Depreciation [Section 32] — Conditions for Allowance
### Depreciation is a COMPULSORY deduction
Per Explanation 5 to Section 32, depreciation is mandatory — it is allowed even if the assessee does not claim it.
### Three conditions [Rule 5]
(a) Asset must fall in an eligible category
- Tangible: Buildings, furniture, and Plant & Machinery (residuary).
- Intangible: Know-how, patents, copyrights, trademarks, licences, franchises and similar commercial rights acquired on or after 1 April 1998.
- No depreciation on the cost of Land and on Goodwill.
- Depreciation is allowed on parts/components (e.g., engine of a vehicle, part of machinery/building).
- Meaning of 'Plant':
- Includes: ships, books, vehicles, scientific apparatus, surgical equipment used for business.
- Excludes: tea bushes, livestock, buildings, furniture, fittings, animals, human bodies, stock-in-trade.
- 'Buildings' includes roads, bridges, culverts, wells and tubewells.
(b) Asset must be USED for business during the PY
- Must be put to use at any time during the year; passive usage (kept ready for use — e.g., standby equipment, fire extinguishers) qualifies.
- 50% rule: If an asset is acquired AND put to use for < 180 days in the first year, only 50% of the prescribed rate is allowed that year. Applies only in the year of acquisition, not later years.
- An assessee in the leasing business can claim depreciation even though the asset is used by the lessee.
- If not used exclusively for business, only proportionate depreciation is allowed [Sec. 38(2)].
(c) Assessee must OWN the asset (wholly or partly)
- Ownership (whole or part) is required.
- The assessee need not own the land on which he constructs a building.
- If the assessee incurs capital expenditure on a leased building (construction/renovation/improvement), depreciation is allowed on that capital expenditure.