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Accelerated Depreciation Tax Benefits

Accelerated Depreciation Tax Benefits

A lot of corporates have moved from conventional resources to renewable resources in recent years and solar energy is one of them. Switching to renewable energy is the best decision that could probably be made by an industrial investor because of various reasons like the fact that its sustainability is infinite, and hence, we will never run out of it.

Also, generating energy in an eco-friendly manner without the emission of greenhouse gas as in the case of fossil fuel, thus, reducing air pollution.

Not only is it advantageous in expanding energy supply and reducing dependence on imported fuels, but also in economic development and jobs in manufacturing, installation, and operation & management, etc. However, most of them don’t know the benefits they could possibly avail from it. Thus, with Borg Energy, here is a compilation of some facts and benefits you probably didn’t know about

It is a fact that with the rapid depreciation allowance, commercial and industrial solar users in India can devalue their investment in solar panels or solar power plants at a faster rate than fixed assets. This, in turn, allows users to claim a tax break when they reduce costs in a particular year. The Government of India provides tax incentives for commercial and industrial solar users. The Government of India is proposing rapid depreciation of the same fixed assets of the solar power plant to promote the use of solar energy in the commercial and industrial sectors. According to statistics, the Government of India, which will reach 175 gigawatts of green energy energy capacity by 2022, has shown great interest in supporting the use of green energy energy. Therefore, the use of solar panels is encouraged by the Ministry of New and Renewable Energy under various programs (Solar Rooftop Residential, Commercial and Industrial Industrial Buildings Program). The term “accelerated depreciation” is very common when it comes to investing in solar energy. So let’s see what an instant devaluation is.  This is a depreciation method in which the value of a solar system (fixed asset) declines more rapidly in the first few years. Therefore, depreciation is accelerated. In other words, accelerated depreciation is described as the rapid depreciation of fixed assets over the past years. As depreciation accelerates, depreciation costs increase, resulting in a decrease in both revenue and assets for the first few years. However, due to its low depreciation, it will have a negligible impact on earnings and assets in later years.

What benefit is availed by those who invest in it?

Corporate taxable income in the early years is particularly beneficial for reducing the first 2 or 3 years of the solar energy holiday project and, therefore, these years can be considered as a cash return. For example, commercial or industrial users in India are currently subject to 25% income tax brackets under the Income Tax Act 1961. Now we say that this particular user will create a solar property that has value. Rs. 1 crore in a given financial year, with an expected life of 20 years. Users will be able to get 40% annual depreciation of the rupee. 1.0 crore (taking into account the valuation of written value system (WDV) under ordinary circumstances for income tax purposes). This implies that users will be able to claim a 40% tax benefit. 1.0 crores = Rs. 40 lakhs for 1st year. 60 lakhs (1 crore 40 lakhs) = 24 lakhs next year, 40% of Rs. 36 Lakhs (Lakhs 0 Lakhs 5 Lakhs) = 1.4..4 Lakhs for next year and up to life of the property Increasingly, the importance of ‘accelerated depreciation’ can be taken into account in the context of the solar industry: solar promotes solar investment. Years increase profitability by reducing taxable income in the early years. Postpone more taxes for the posttax period. Speed devaluation provides tax relief for commercial and solar industrial users– Under section 32 of the Income Tax Act. The current rate of acceleration is 40% that can be claimed in one year, and it indicates that the commercial and industrial solar rooftop users can get benefit from the government’s tax rebates on accelerated depreciation of 40%.

Why it (accelerated depreciation) does not apply to all anyone investing in solar?

Firstly, as a financial incentive, accelerated depreciation is only applicable to business entities; if you are running a business, accelerated depreciation is a benefit only if you are a profit-making company. The reason is clear – unless you are making profits, then you are not paying taxes, and accelerated depreciation essentially is a benefit you get through the lowering of your taxes. If you are not in any way of paying taxes, then the financial difference cannot accelerate, which makes depreciation. Thus, residential solar energy investors cannot benefit from accelerated depreciation.

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Borg Energy India specialized in the sectors of Residential and commercial Solar Solutions, Solar Irrigation, Energy Efficient Retrofitting, and Consultation.