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What is the concept of "Block of Assets" under the Indian Tax Rules?
The concept of block of assets can be considered under the concept of depreciation of assets under the Indian Tax rules. Let’s go through the concept of depreciation under income tax rules to understand the concept of ‘block of assets’ better.
Depreciation under Indian Income Tax Rules
Depreciation under Indian Income Tax rules is a deduction allowed by the government for the reduction of the value of assets used by a taxpayer. It is a continuous process and is usually calculated over the useful life of the assets.
Depreciation
Depreciation is the gradual loss of value of an asset. Under Indian Income Tax rules, the concept of depreciation is used to write off the value of an asset over its useful period of life.
It is a mandatory process the deductions of which must be included in the profit and loss statements of an entity.
The Income Tax Act allows recording depreciation in either straight-line method or Written Down Value (WDV) method.
WDV method of calculation of depreciation is by far the most popular way of reporting depreciation. The Income Tax Act also allows a deduction in depreciation in the purchase year of an asset.
The Concept of Block of Assets
It is always easier to create a class of assets to apply a rate of tax on assets and that is where the concept of block of assets comes in handy. The idea of a block of assets under the Indian Income Tax Act comes from that idea. In a ‘block of assets, the assets of similar category are considered in a block or class that comprises of similar other assets. In other words, the ‘block of assets is a group of a company’s assets falling within a class of assets comprising of −
Tangible assets such as building, plant, furniture, and machinery; or,
Intangible assets such as copyright, license, know-how, patents, trademarks, or any other business or commercial rights that are owned by a company.
The idea of a block of assets is to make things simpler for accounting and calculation of depreciation and other required calculations in finance. By referring to block of assets, tax consultants and accountants can find the tax rate and other provisions of a depreciating asset quickly and without any hassle. Block of assets is, therefore, a rule to be followed as well as a way to make things simpler.
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