Section 43(1) ACTUAL COST
Section 43(1) ACTUAL COST
Meaning of Actual Cost
Actual cost is the cost for which an asset is
acquired by the assessee.
Note:
Any part of the cost
paid by any other person
or any authority directly or indirectly is not to be included.
Example:
Mr X has bought
a machinery of Rs 10 lakhs. He has received
a government grant
of Rs 3 lakhs for acquisition of the
said asset and
the balance Rs 7 lakhs
has been paid by him.
In this case,
actual cost u/s
43(1) shall be Rs 7 lakhs only.
Items to be Included in Actual Cost
Actual cost would include the following:
•
Expenses directly related to the acquisition of the asset;
•
Expenses necessary
to bring the asset to site and install it (such as carriage inwards,
charges related to loading
and unloading of the asset,
installation charges, etc);
•
Expenses incurred to put
the asset in use (such
as cost of making a support structure for the asset);
• Interest on capital borrowed for the acquisition of asset commencing from the date of borrowing till the date the asset was first put to use.
Example:
A loan was taken for purchase of machinery on April 1, 2017. The asset was purchased on September
1, 2017 and was put to use on November 1, 2017. Interest from April 1, 2017 to October 31, 2017 shall
be capitalized whereas
interest for the period from November 1, 2017 to March 31, 2018 shall be treated
as revenue expenditure.
Assets Initially Used For Personal
Purposes Subsequently Used in Business/ Profession
Case (a): Buildings previously used for personal purposes subsequently used for the Lpirpoi ses of business/profession.
In such cases, actual cost shall be the actual cost of the building to the assessee as reduced by an amount equal to the depreciation that would have been allowable had the building been used for the business/profession since the date of its acquisition. In other words, :cri-ional depreciation would be allowed
Example: Mr A bought a residential building for the purposes of his residence on 01.11.2015 for Rs 20,00,000. The residential building was brought by him for his professional use on 01.12.2017, when its market value was Rs 40,00,000. In this case, the actual cost of the asset u/s 43 (1) shall be computed as under:
|
Particulars Cost of residential building 20,00,000 |
Amount (Rs) |
|
Less:
Notional depreciation k.c 2.5% for PY 2015-16 (Less than 180 days) |
(50,000) |
|
WDV as
on 01.04.2016 |
19,50,000 |
|
Less:
Notional depreciation @ 5% for PY 2016-17 |
(97,500) |
|
Actual
cost of residential building u/s 43(1) = WDV as on 01.04.2017 |
18,52,500 |
|
Depreciation for PY 2017-18 @ 5% |
92,625 |
Case (b): Any other asset (such as P&M, furniture. etc) previously used for personal purpose subsequently used for the purpose o business/ profession.
In such cases,
the cost of acquisition of the asset
shall be treated
as actual cost
for the purposes
of Section 43(1). In other words,
no notional depreciation shall
be allowed.
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Section 43(1) ACTUAL COST
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