# Other Points Relating to Depreciation

## (i) Asset used Partly for Business & Partly for Personal Purpose

Depreciation is allowed only to the extent of business use.

Full depreciation is computed first (at the applicable rate on full WDV).
The business-use portion is allowed as deduction.
The personal-use portion is disallowed.
Closing WDV is reduced ONLY by the depreciation actually allowed.

## (ii) Asset Purchased in Foreign Currency on Credit [Section 43A]

When an imported asset is purchased on credit and payment is later made in foreign currency, the forex fluctuation between purchase and payment dates is adjusted to the cost of asset:

If Foreign Currency Profit (₹ depreciates → less to pay)	If Foreign Currency Loss (₹ appreciates → more to pay)
Reduce from cost of asset	Add to cost of asset

## (iii) Depreciation for Undertaking engaged in Generation of Power

Such undertakings have an option:

Option 1: WDV method on block of assets (standard rules apply).
Option 2: Straight Line Method (SLM) on each asset separately [but NO additional depreciation under this option].

### Sale of Asset under SLM Option

Scenario	Treatment
Sale Price < WDV	Loss = Terminal Depreciation → Deduction allowed under PGBP
Sale Price > WDV	Profit = Balancing Charge → Taxable under PGBP (to the extent of depreciation already claimed)

## (iv) Unabsorbed Depreciation [Section 32(2)]

```

Profit before charging depreciation (as per Income Tax Act) XX

(-) Depreciation (as per Income Tax Act) (XX)

-----------------------------------------------------------------

Unabsorbed Depreciation (XX)

```

Treatment of Unabsorbed Depreciation:

Can be set-off against income from ANY head (except Salary) in the same year.
Can be carried forward indefinitely (no time limit).
Continuity of business or filing of return within due date is NOT required.

Worked example

### Example 1

Example — Partly business / partly personal use:

Assessee uses a Car (15% block) for 60% business and 40% personal. WDV of Car = ₹ 10,00,000.

Total Depreciation = 10,00,000 × 15% = ₹ 1,50,000
Depreciation allowed (60%) = ₹ 90,000
Depreciation disallowed (40%) = ₹ 60,000
Closing WDV = 10,00,000 − 90,000 = ₹ 9,10,000

Note: Closing WDV is reduced by ₹ 90,000, NOT ₹ 1,50,000.

⚠️ Common exam mistakes

Reducing closing WDV by the full depreciation in partly-personal-use cases — reduce only by the amount actually allowed.
Adjusting forex profit/loss in P&L instead of cost of asset under Section 43A — this is wrong; it must be adjusted to the asset cost.
Setting off unabsorbed depreciation against salary income — NOT allowed.
Mistakenly thinking unabsorbed depreciation expires after 8 years like business loss — it can be carried forward INDEFINITELY.
Forgetting that unabsorbed depreciation does not require continuity of business for set-off (unlike unabsorbed business loss).

Bare-Act text Section 32(2) and Section 43A · Income Tax Act, 1961 · click to expand

Section 32(2) — Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.

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Other Points Relating to Depreciation (Personal Use, Forex, Power Generation, Unabsorbed Depreciation)

Worked example

⚠️ Common exam mistakes