Tax Book 2023

Assets and Depreciation Chapter- 10

Particulars

(1)

Pre-commencement expenditure U/S 25

(2)

1. To whom available A person shall be allowed deduction for the any above related
   expenditure.


2. Basis 20% straight line method


3. Limitation on pre-
   commencement
   expenditure

 The total deductions allowed under this section in the current and

all previous tax years shall not exceed the amount of the

expenditure.

 No deduction shall be allowed for any pre-commencement

expenditure where a deduction has been allowed under another

section of this Ordinance for the entire amount of the pre-

commencement expenditure.

4. Pre-commencement
   expenditure

"Pre-commencement expenditure" means any expenditure incurred;

 before the commencement of a business wholly and exclusively to

derive income chargeable to tax,

 cost of feasibility studies,

 construction of prototypes

 trial production activities, but

shall not include any expenditure which is incurred in acquiring land, or

which is depreciated or amortized.

EXCEPTION TO THE RULE COST INCURRED AND CONSIDERATION RECEIVED / SPECIAL POINTS

ON DISPOSAL OF DEPRECIABLE AND NON DEPRECIABLE ASSETS:

In case of disposal of the asset, following rules shall apply:

a. Total deduction (normal and initial allowance) allowed to a person during the period of ownership of a
depreciable asset shall not exceed the cost of the asset [U/s 22(7)].

b. No depreciation shall be allowed in the year of disposal. [U/s 22(8)].

c. Gain / loss on disposal of depreciable asset;

 If the consideration received against the disposal of depreciable asset is more than its WDV,

then excess shall be chargeable to tax under the head “income from business” [U/s 22(8a)].

 If consideration received against the disposal of a depreciable asset is less than WDV, then

the difference shall be deducted from income chargeable to tax under the head “income from

business” [U/s 22(8b)].

d. Where an asset was partly used for business and partly for some other purpose, then WDV at
the time of disposal shall be increased by depreciation not allowed on account of non business use
[U/s 22(9)]. (See example 4)

e. If the cost of passenger transport vehicle not plying for hire is more than Rs. 7 .5 million, then it
shall be considered equal to Rs. 7 .5 million and in this case disposal consideration shall also be
reduced as per following formula [U/s 22(10)]: (See example 5)
(Amount received on disposal of the vehicle x 7 .5 million) / Actual cost of vehicle
Note: If the passenger transport vehicle in plying for hire then there is no limitation on cost of
transport vehicle under the aforesaid section.