Volume 2, Issue 9


16th May, 2009


Tax Alert
Higher Depreciation on New Commercial Vehicles

Under the Income‐tax Act, 1961 (‘Act’), an assessee is eligible to claim depreciation in respect of commercial vehicles used for the purpose of business or profession. Where the
motor cars are used in the business of running them on hire, the rate of depreciation is 30%. In all other cases, the rate of depreciation is 15%.

With a view to boosting the automobile manufacturing industry and increasing sales of vehicles, the Government had issued a Notification dated 19th January 2009 to provide that in respect of new commercial vehicle acquired on or after 1st January 2009 and put to use on or before 31st March 2009, the assessee would be eligible to claim depreciation at a higher rate of 50%. Thereafter, the Government has issued a press release dated 24th April 2009 extending the benefit of enhanced depreciation of 50% to commercial vehicles purchased up to 30th September 2009.

Effectively, any new commercial vehicle acquired on or after 1st January 2009 and put to use on or before 30th September 2009 will be eligible to depreciation at the rate of 50%. To claim the enhanced depreciation, the assessee will not only have to acquire the vehicle before 30th September 2009 but also put it to use on or before 30th September 2009. Also, this benefit is available only in respect of new vehicles and not in respect of used / second‐hand vehicles.

However, the most beneficial provision contained in this Notification, in our view, is that although it uses the expression “Commercial Vehicle” as eligible for higher rate of depreciation, it would actually include any motor car which is used for the purpose of business or profession. This benefit is not restricted to assessees who carry on the business of hire of cars. This view draws support from the definition of “Commercial Vehicle” provided in the Income Tax Rule, which is given below.

However, two‐wheelers, tractors and road rollers are not eligible to claim the enhanced depreciation.

Once a commercial vehicle becomes eligible to claim enhanced depreciation of 50%, it will continue to enjoy depreciation at the rate of 50% even after 30th September 2009.

Definition of commercial vehicle:

Commercial vehicle means ‘heavy goods vehicle’, ‘heavy passenger motor vehicle’, ‘light motor vehicle’, ‘medium goods vehicle’ and ‘medium passenger motor vehicle’ but does not include ‘maxi‐cab’, ‘motor‐cab’, ‘tractor’ and ‘road roller.’ These expressions have been defined in Section 2 of the Motor Vehicles Act, 1988 and are given below:

Heavy Goods Vehicle:

A heavy goods vehicle is a vehicle, the gross weight of which exceeds 12,000 kg.

Heavy Passenger Motor vehicle:

Heavy Passenger Motor vehicle means any public service vehicle or private service vehicle

or educational institution bus or omnibus, the gross vehicle weight of which exceeds 12,000 kg, or where the vehicle is a motor car, the unladen weight of which exceeds 12,000 kg.

Light Motor Vehicle:

Light motor vehicle means a transport vehicle or omnibus, the gross weight of which does not exceed 7,500 kg. Where the vehicle is a motor car, the unladen weight does not exceed 7,500 kg.

Medium Goods Vehicle:

Medium Goods Vehicle means any goods carriage other than a heavy motor vehicle or a light motor vehicle. Such vehicles can claim depreciation at the rate of 50%

Medium Passenger Motor vehicle:

Medium passenger motor vehicle means any public service vehicle or private service vehicle or educational institution bus other than a motor cycle, invalid carriage, light motor vehicle or heavy passenger motor vehicle. Such vehicles can claim depreciation at the rate of 50%

Motor‐cab:

Motor‐cab means any motor vehicle constructed or adapted to carry not more than 6 passengers excluding the driver for hire or reward. Hence, where the assessee is engaged in the business of giving cars and vehicles on hire and such vehicle has a sitting capacity of up to 6 passengers, excluding the driver, the assessee will not be eligible to claim enhanced depreciation of 50% in respect of such vehicles. Depreciation on such vehicles is allowed at the rate of 30%.