Depreciation is allowed on the acquisition cost of the following assets where such assets are used for income producing purposes:
Depreciation Rate (%)
|A||Buildings, structure and similar works of a permanent nature||5%|
|B||Computers, fixtures, office furniture and office equipment||25%|
|C||Automobiles, buses and minibuses||20%|
|D||Construction and earth-moving equipment and any depreciable asset not included in another class||15%|
|E||Intangible assets other than depreciable assets included in class “D”||During the useful life of Asset|
For more details on the Income Tax Act of Nepal, please refer to http://www.ird.gov.np
Each depreciable asset at the time it is first owned or so used, are placed in a pool referred to as pools of depreciable assets. Depreciation is calculated on the reducing balance method and is based on the pool of assets. The pool of assets concept suggests aggregation of all assets with the same depreciation rate into a common block for computation of depreciation. Depreciation is computed at varying rates as prescribed. In the year of purchase depreciation is available for the full year, if an asset is added to the pool for more than six months. In other cases, depreciation is allowed at either two thirds or one third of the normal rate, if the addition is made for less than six or three months, respectively.
Amounts derived from the disposal of an asset or assets are reduced from the written down value of the relevant pool. However, the net book value (cost less depreciation accrued till the income year) can be claimed as expenses in case the machines, equipment and other machinery installed in a public infrastructure project which an entity constructs, operates and then transfers to GoN, and a project relating to the construction of a powerhouse and generation and transmission of power has to be replaced due to the assets being old or obsolete and thus useless. The book value of those assets remaining at the date of transfer to GoN can be claimed as expenses for such companies. Manufacturing industries can claim additional depreciation at one third of the normal rate.
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