Section 43(1) : Actual Cost of Asset:
Actual Cost of asset for depreciation means actual purchase price and also including following expenses
- Installation Charges
- Transport Expenses for asset
- Trial run/ test run expenses
- Taxes & duties (If Input Tax Credit not available)
- Interest on loan taken for acquisition of asset( Up to the date of asset put to use)
But following amount need to reduced
- Amount recorded on sale of trial run product.
- Subsidy/Govt Grants recorded for acquisition of assets.
The following is the computation table for actual cost of asset
| Particulars | Amount(Rs) |
|---|---|
| Actual Purchase Price | XXX |
| (+) Installation Charges | XXX |
| (+) Transportation Charges | XXX |
| (+) Trial Run/ Test Run Expenses | XXX |
| (+) Taxes & Duties which is ITC not available | XXX |
| (+) Interest on loan taken for Acquisition of Assets | XXX |
| (-) Amount recorded on sale trial run Product | (XXX) |
| (-) Subsidy/Govt grants record for acquisition assets | (XXX) |
| Actual Cost | XXX |
Example:1
Onlinesolves.Ltd purchased a machinery for Rs. 15, 00,000 and spent Rs. 70,000 towards installation and 80,000 towards transportation of machinery. Further, It was allowed a subsidy of 20% of purchase cost by the state government under a scheme. Compute the actual cost of Machinery.
Solution
Actual Cost of Machinery as per Section 43(1) of Income Tax Act
| Particulars | Amount(Rs) |
|---|---|
| Purchase Price | 15,00,000 |
| Add: Installation charges | 70,000 |
| Add: Transportation Charges | 80,000 |
| Less: Cost met by government as subsidy | (3,00,000) |
| Actual Cost | 13,50,000 |
Important Note:
- If the taxpayer makes payment of consideration for asset in cash, it should not be more than Rs. 10,000 to a person in a single day.
- If the proviso is violated and payment is made for more than Rs. 10,000 in cash in a day, such expenditure shall be ignored for the purpose of determining the actual cost of asset.
Example:2
Onlinesolves.Ltd purchased a machinery for Rs. 15, 00,000 and spent Rs. 70,000 towards installation and 80,000 towards transportation of machinery. Further, It was allowed a subsidy of 20% of purchase cost by the state government under a scheme. The buyer has paid Rs. 3, 00,000 in cash out of Rs. 15, 00,000. Compute the actual cost of Machinery.
Solution
Actual Cost of Machinery as per Section 43(1) of Income Tax Act
| Particulars | Amount |
|---|---|
| Purchase Price (15,00,000- 3,00,000) | 12,00,000 |
| Add: Installation Charges | 70,000 |
| Add: transportation Charges | 80,000 |
| Less: Cost met by government as subsidy | 2,40,000 |
| Actual Cost | 11,10,000 |
In this example, since, the buyer has paid Rs. 3, 00,000 in cash which violates the proviso, the actual cost of machinery will be considered as Rs. 12,00,000 only.
