Karachi, November 26, 2023 – The Federal Board of Revenue (FBR) has taken a significant step towards enhancing transparency and accuracy in tax reporting by issuing a detailed list of particulars required for claiming depreciation deduction during the tax year 2024.
The move is part of the FBR’s efforts to streamline the tax process and ensure that taxpayers provide comprehensive information regarding depreciable assets and intangibles.
The FBR’s initiative is outlined in the recently released updated Income Tax Rules, 2002, specifically tailored for the tax year 2024. According to the FBR, taxpayers are now obligated to furnish a set of particulars when submitting a return of income to claim a depreciation deduction under Section 22, an initial allowance under Section 23, or an amortization deduction under Section 24, in conjunction with the Third Schedule to the Income Tax Ordinance, 2001.
Key particulars required for claiming depreciation deduction include:
1. Description of Assets: Taxpayers must provide a detailed description of each depreciable asset and intangible for which a deduction is being claimed.
2. Part-Use Information: In cases where a depreciable asset or intangible is used only partly in deriving income from business chargeable to tax, taxpayers must specify the extent of such part use.
3. Date of Acquisition: If the depreciable asset or intangible was acquired in the tax year, taxpayers are required to disclose the date of acquisition.
4. Written Down Value: The written down value of each depreciable asset at the beginning of the tax year and the cost of each intangible must be provided.
5. Capital Expenditure: Taxpayers need to furnish the amount of capital expenditure incurred in the tax year on additions, alterations, improvements, or extensions related to any depreciable asset or intangible.
6. Total Value of Assets: The total value of each depreciable asset, for which a depreciation deduction is allowable, must be calculated (sum of written down value and capital expenditure, less any initial allowance allowed).
7. Prescribed Rates: The prescribed rate of depreciation and initial allowance for each depreciable asset or class of asset, and the normal useful life for each intangible, should be stated.
8. Depreciation and Amortization Details: Taxpayers are required to provide the amount of depreciation deduction and initial allowance for each depreciable asset and the amount of amortization deduction for each intangible for the year.
9. Total Deductions: The total depreciation deduction, initial allowance, and amortization deduction allowed for the tax year must be specified.
10. Year-End Information: The written down value of each depreciable asset, the cost of intangible at the end of the tax year, and the remaining normal useful life must be disclosed.
The FBR has also outlined specific particulars to be furnished when a depreciable asset or intangible is disposed of during the tax year. These include consideration received, the written down value at the beginning of the tax year, and the excess or deficit of the consideration received in relation to the written down value.
The move is expected to bring greater clarity to the depreciation deduction process, ensuring that taxpayers provide accurate and comprehensive information, ultimately contributing to a more robust and accountable tax regime. Taxpayers and financial professionals are urged to familiarize themselves with the updated requirements to ensure compliance and avoid potential discrepancies in their tax filings.
