Depreciation on solar panels as per income tax act?
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As per the Income-tax act, solar panels are categorized under the heading renewal energy devices. The rate of depreciation for these devices is mentioned below.
As per the act, the rate of depreciation for solar panels is given as 40% as per the WDV method. Generally, these devices are treated as investments in fixed assets. Therefore they are treated accordingly like other fixed assets and are depreciated periodically in an organized and regular time period. The useful life of such solar devices is taken to be 5 years.
Giving you a small example of the depreciation on solar panels.
Solar panels were purchased by Agro Farm ltd. for installing them to be used for electricity generation. These panels were bought for Rs 2,00,000. Therefore depreciation to be charged as per income tax act over its useful life of 5 years is as follows:
Depreciation as per WDV = (Cost of an asset – salvage value)* rate of depreciation
Depreciation for 1st year = (2,00,000 – 0)* 40% = Rs 80,000
WDV at the end of 1st year = (2,00,000 – 80,000) = Rs 1,20,000
Depreciation for 2nd year = (1,20,000 – 0)* 40% = Rs 48,000
the same process will continue till the useful life of an asset.
The depreciation amount will be written off from the book value as shown below: