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Karan
Karan
In: 1. Financial Accounting > Depreciation & Amortization

Depreciation on solar panels as per income tax act?

Depreciation on solar panels as per income tax act?
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    1 Answer

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    1. prashant06 B.com, CMA pursuing
      2021-07-26T14:11:42+00:00Added an answer on July 26, 2021 at 2:11 pm
      This answer was edited.

      As per the Income-tax act, solar panels are categorized under the heading renewal energy devices. The rate of depreciation for these devices is mentioned below.

      As per the act, the rate of depreciation for solar panels is given as 40% as per the WDV method. Generally, these devices are treated as investments in fixed assets. Therefore they are treated accordingly like other fixed assets and are depreciated periodically in an organized and regular time period. The useful life of such solar devices is taken to be 5 years.

      Giving you a small example of the depreciation on solar panels.

      Solar panels were purchased by Agro Farm ltd. for installing them to be used for electricity generation. These panels were bought for Rs 2,00,000. Therefore depreciation to be charged as per income tax act over its useful life of 5 years is as follows:

      Depreciation as per WDV = (Cost of an asset – salvage value)* rate of depreciation

      Depreciation for 1st year = (2,00,000 – 0)* 40% = Rs 80,000

      WDV at the end of 1st year = (2,00,000 – 80,000) = Rs 1,20,000

      Depreciation for 2nd year = (1,20,000 – 0)* 40% = Rs 48,000

      the same process will continue till the useful life of an asset.

      The depreciation amount will be written off from the book value as shown below:

      Useful life Value at the beginning of the year Depreciation amount Value at the end of the period
      1 2,00,000 80,000 1,20,000
      2 1,20,000 48,000 72,000
      3 72,000 28,800 43,200
      4 43,200 17,280 25,920
      5 25,920 10,368 15,552

       

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