Treatment of Depreciation

Section 341(3)(a) of the Income Tax Act, 2025 addresses a crucial issue regarding double deduction of depreciation by Non-profit organizations. As per section 341(3)(a), deduction of depreciation in respect of an asset, the acquisition cost of which has been claimed as an application of income in the same or any other tax year, shall not be allowed as application of income.

Earlier, NPOs were claiming capital expenditure on fixed assets as application of income and claiming depreciation on the same assets in the subsequent years. This resulted in double benefits on the same expenditure. Now, the said practice has been explicitly disallowed under section 341(3)(a). Thus, if an asset is acquired and its cost is already claimed as application of income, then depreciation on such asset shall not be allowed as application of income again for the purposes of Section 341.

Example:

A trust earns Rs.50 lakhs during the year and purchases a building for Rs.20 lakhs for its charitable school.

• The Rs.20 lakhs spent on the building will be treated as application of income in that tax year.
• However, in future years, the trust cannot claim depreciation on that building under Section 341.

This prevents the same expense from being used to claim tax exemption more than once.