Meaning of Unabsorbed Depreciation

Assessee carrying business/profession are allowed to debit the depreciation expenditure while calculating their income u/h 'business/profession'. However, such expenditure can be debited only to the extent income is available u/h business/profession. The balance amount of depreciation that cannot be debited is referred to as 'unabsorbed depreciation'.

Example: PGBP income before debiting current year depreciation is Rs 1,00,000 and current year depreciation expenditure turns out to be Rs 1,60,000. In this case, depreciation to the extent of Rs 1,00,000 would be debited to P&L A/c and balance Rs 60,000 would be referred to as 'unabsorbed depreciation'.

Treatment of Unabsorbed Depreciation

                        Unabsorbed depreciation of a particular year is allowed to be set-off in the same year against income under any other head except casual income.

                        If unabsorbed depreciation cannot be adjusted in the some year, it is allowed to be cif for indefinite period of time (ie for an unlimited period) and in the subsequent years, such unabsorbed depreciation shall be allowed to be set-off against any income other than casual income.

                        If any assessee has b/f business losses as well as b/f unabsorbed depreciation, a rational taxpayer would first adjust business losses and unabsorbed depreciation afterwards.


Mr X has business income of Rs 10,00,000 for PY 18-19 and has b/f business losses of Rs 8,00,000 and b/f unabsorbed depreciation for Rs 5,00,000 pertaining to past periods.

In this case, b/f business loss would be adjusted first and unabsorbed depreciation would be adjusted subsequently to the extent of Rs
2,00,000. Unabsorbed  depreciation  of  Rs 3,00,000  would  be  carried  forward  to  the  next  AY.

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