Page 48 - Banking Finance MAY 2017

FEATURES

CASH PURCHASE OF

ASSETS WILL AFFECT

DEPRECIATION CLAIMS

T he manner in which an the purchase. Hence, the expense in- payment. Those who have income from

individual's taxable income is curred on purchasing these capital as-
a business or profession need to under-
calculated depends on how sets also has to be spread out over a
stand the new guidelines and be ex-
he earns. The salaried class period of time which corresponds with
else they could end up enjoying a lower
does not have too many op- their working life. tremely careful in adopting them, or
portunities to claim deductions, as their tax deduction on depreciation.
scope is limited to a few allowances and The percentage of the total value of the
reimbursements. On the other hand, for asset that is written down each year is Ceiling imposed
those who are self-employed or run based on a specified formula. It is re- Until now there were no restrictions
their own business or profession, there ferred to as depreciation. Depreciation on incurring capital expenditure in
is plenty of scope. In their case, business is allowed as a deduction from the gross cash, which made it convenient for
expenses can be deducted from the income earned by the business or pro- businesses to make such expenses and
gross income to arrive at the taxable fession. It is an important benefit for claim the corresponding benefit. Now,
income. business as it goes a long way towards the government has imposed a mon-
reducing their tax liability. etary limit on capital expenses incurred
Capital and revenue ex- in cash, so as to get businesses to move
Cash purchases now under the scanner towards electronic modes of payment.
penses The purchase of a capital asset often This transition is also expected to result
Expenses incurred for the purpose of requires a large upfront payment. A in greater transparency in the way
business or profession become eligible business purchases a variety of capital businesses function.
for deduction in two ways. One, they assets, which could range from comput-
could be revenue expenses which are ers to furniture and even land and The limit for cash expense that can be
incurred on the purchase of capital as-
incurred while conducting the business, building. The payment mode used for
sets has been fixed at Rs 10,000. For
and hence are permitted as a deduc- making these purchases can vary.
tion. Expenses of this type include those amounts higher than this, other modes
related to running the office, travel Sometimes the payment is done of payment will have to be used. The
expenses, and advertising and market- through cheque or via other electronic fine print of this provision will have to
ing expenses. modes of payment. However, a lot of be understood and taken into consid-
times businesses also make such pay- eration by businesses.
The other area where a business or ments in cash. This is especially com-
profession spends is on the addition of mon in the case of small-ticket pur- Pay heed to the fine print
capital assets. Capital assets are defined chases where the cost is not very high. The important thing to consider is the
as those whose benefits come over a This mode of payment has now come details related to payments and the
period of time, and not just immedi- under the government's scanner, which manner in which the restrictions will
ately or in the initial time period after is trying to promote digital modes of apply. The limit of Rs 10,000 is linked

48 | 2017 | MAY | BANKING FINANCE

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