Depreciation plays a vital role in reducing the profits of the business. Depreciation is allowed as deduction while computing income under head profit & gains of business. It is allowed on fixed assets like building, machinery and furniture & fixtures but not on the land.
Why depreciation is necessary
Depreciation is for reducing the value of assets due to wear n tear, use and for change in technology. There is always a need to write the correct value of assets in the balance sheet which can be writing only with the deducting depreciation from it. Moreover depreciation is non cash expenditure but it is an expense a non cash expense which reduces the value of assts so as reduce the profit and the tax liability.
How it is computed.
There are two way to compute depreciation.
1- Under the company act.
2- Under the income tax act.
Depreciation under company act
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