Accelerated Depreciation is one term that has direct benefits but is also confusing for many. In this blog, we will talk about it and make it simpler for you to understand the term and its advantages.
First, let’s see what exactly is Accelerated Depreciation?
Accelerated Depreciation is an accounting term. It is a method wherein value of fixed asset depreciates at a faster rate in its initial years irrespective of your asset’s lifespan. Accelerated Depreciation is a very popular incentive for industrialists and commercial customers across the globe to go solar.
Claiming Accelerated Depreciation for Solar PV Systems
Accelerated depreciation is applicable if the solar PV system is installed for industrial or commercial purpose. The Central or State Government does not provide financial assistance in terms of subsidized amount for industrial and commercial customers. Thus, accelerated depreciation is the indirect financial assistance that an industrial or commercial customer can benefit from while opting for installation of solar PV system.
The primary condition to claim Accelerated Depreciation is that the business must be a profit-making entity. After satisfying this primary condition, Accelerated Depreciation can be claimed in the following pattern:
40 % of the total paid system cost for 1st year
40 % of the total paid system cost for 2nd year
20 % of the total paid system cost for 3rd year
Claiming Accelerated Depreciation means that you can directly reduce your taxable amount for three consecutive years starting from the accounting year in which the system is installed.
We will look into an example to understand this further.
Say, Mr. Khanna owns a profit-making business and has installed a solar rooftop PV system for INR 10 lakh in July 2017. By satisfying the primary condition of having a profitable business, Mr. Khanna can claim Accelerated Depreciation to reduce the total taxable amount for three accounting years.
Let’s see how…
By claiming Accelerated Depreciation, Mr. Khanna is saving a significant amount of tax as his taxable amount itself is reduced for three consecutive accounting years.
With this example, we would also want you to know that Accelerated Depreciation promotes:
– Investing in Solar to earn social and commercial reputation
– Postponing higher taxes for later period
– Motivating achieving more profits in business
When you make a choice to install solar PV systems, you not only enjoy the benefit of a greener and cleaner energy but also enable your businesses to save up on taxes big time.
We hope this blog was helpful for you to understand Accelerated Depreciation. If not, please share with us your doubts and questions in the comment section below. We will be more than happy to help you with answers.
