Question

What is tax depreciation and why is it important?

I want to start a business and need to know what my choices are. What is best for tax purposes and why?

Answer 1

TAX DEPRECIATION SIMPLY MEANS THAT THE EXPENSES THAT WE CAN CLAIM WHEN WE FILE INCOME TAX RETURNS. AS THE NAME SAYS INCOME TAX IS THE TAX PAYABLE FOR THE INCOME FOR A PARTICULAR FINANCIAL YEAR. INCASE IF WE DONT HAVE ANY EXPENSES TO SHOW, THEN WE ARE LIABLE TO PAY TAX FOR THE ENTIRE AMOUNT.

WHEN EXPENSES INCREASES INCOME DECREASES AND THE TAX BURDEN ALSO DECREASES.     SOME BUSINESS FIRMS AND PEOPLE INCLUDE HUGE AMOUNT AS EXPENSES IN ORDER TO REDUCE THE TAX BURDEN. BUT IN MY OPINION ITS NOT A FAIR PRACTISE. BECAUSE IF IT IS UNDERSTOOD BY THE TAX AUTHORITY, THEY WILL PUNISH YOU FOR MANIPULATING TAX AMOUNT.

                                        DEPRECIATION

IF WE PURCHASED A MACHINERY COSTING RS 10 LAKHS, ITS NORMAL LIFE IS 10 YEARS. WE NEED TO REPLACE THAT FIXED ASSET(MACHINERY) AFTER 10 YEARS. FROM WHERE WE FOUND THAT HUGE AMOUNT AT THAT TIME? THESE TYPE OF ANTICIPATED EXPENSES ARE WRITTEN OFF EVERY YEAR BY THE COMPANY AND ITS TERMED AS DE[PRECIATION. THERE ARE MANY METHODS FOR CALCULATING DEPRECIATION.

STRAIGHT LINE METHOD IS ONE OF THE IMPORTANT ONE WHERE A FIXED AMOUNT OF MONEY WRITING OFF EVERY YEAR TO RECOVER THE COST AFTER THE LIFETIME OF ASSET.

CHARGING MORE ON DEPRECIATION REDUCE THE TAX BURDEN

TO CONCLUDE CHARGING DEPRECIATION AND OTHER EXPENSES PLAY A VITAL ROLE IN YOUR TAX LIABILITY. TAX EVASION IS A CRIME.SO WE SHOULD FOLLOW PROPER METHODS IN WRITING OFF YOUR EXPENSES AND TRY TO REDUCE TAX WHICH IS BENEFICIAL FOR YOUR COMPANY AND THE PUBLIC. BECAUSE PUBLIC SUPPORT IS ESSENTIAL FOR THE GROWTH OF YOUR BUSINESS. A COMPANY FOLLOWING A GOOD STANDARD OF BUSINESS AND GOVERNMENT LAWS WILL GET MORE REPUTATION IN PUBLIC AND HENCE CAN EASILY RAISE FUND FROM PUBLIC AT LARGE.