The program calculates the depreciation on each asset block according to the Income Tax Act.

The Income Tax Act requires you to depreciate all assets in blocks (in the SAP System, called asset groups). In other words, you do not calculate the depreciation on each individual asset. Instead, an asset group has its own net book value.

The asset block’s net book value increases when you add assets to it and falls when you sell or retire assets. You also calculate depreciation on the block’s net book value. The depreciation rate depends on the asset block and is prescribed by the government. Since an asset block may exist for a very long time, as you add new assets to it, it has an unrestricted useful life.

For example, assume your company has four trucks. At the beginning of fiscal 20X1, the trucks have a total net book value, for income tax purposes, of INR 300,000. At the end of the year, with no acquisitions and no retirements, the net book value has not changed. The total depreciation on all of the trucks is 10% of INR 300,000, or INR 30,000.

The total net book value of the block at the beginning of 20X2 is therefore INR 270,000.

If you purchase an asset less than 180 days before the end of the fiscal year, you are only entitled to depreciate it at half of the normal rate of depreciation. To continue the example, on 1 June 20X2 you sell a truck for IN 30,000. On 31 March the following year, instead of posting INR 3,000 depreciation, you can only post half of that, INR 1,500.

The system handles this requirement by taking half the acquisition cost and calculating depreciation on that.

When you retire an asset, you are not entitled to calculate any depreciation on it in that fiscal year at all.