Fixed Asset Depreciation: As per Companies Act and Income Tax Act
Indian Companies are required to maintain fixed asset records as per Companies Act and Income Tax Act, governed by Companies Act, 2013, and the Income Tax Act, 1961, respectively.
While the Companies Act focuses on providing a true and fair view of an organization’s financial position for stakeholders, the Income Tax Act is concerned with determining taxable income and ensuring fair tax collection.
This blog will explore the methodologies, and practical considerations for managing fixed asset depreciation under the Companies Act and the Income Tax Act, helping organizations to be compliant. This is possible by following the below steps:
- Create 2 set of books : Companies Books & Income Tax Books
- Assign Fixed Asset groups to the books.
- Define Depreciation Period and effective life of the asset.
- Create Tax Posting Layer : Go to General Ledger=>Setup=>Journal Names=>IT Depreciation. This will record transaction without posting to the General Ledger and these transactions will be outside the financial books.
- To view these transactions : Go to General Ledger =>Trial Balance=>Change Parameters of Posting layers to Tax.
This functionality helps companies to maintain proper records, traceability and retrieval of records for compliance. Organizations must carefully maintain separate records and calculations to meet the distinct requirements of both laws. Aligning accounting practices with these regulatory frameworks not only helps in minimizing compliance risks but also optimizes financial planning and tax efficiency. Regular reviews and updates in line with legislative changes are critical to sustaining accurate asset management and reporting.
We hope you found this blog useful, and if you would like to discuss anything, you can reach out to us at transform@cloudfonts.com.
