Unabsorbed Depreciation refers to the amount of depreciation expense on business assets that a company or individual taxpayer has not been able to fully deduct from their taxable income in a particular financial year due to insufficient profits. In the Indian taxation system, if the depreciation claimed exceeds the business income for that year, the remaining depreciation amount is called "unabsorbed" and can be carried forward to subsequent years. This allows taxpayers to reduce their taxable income in future years by adjusting the unabsorbed depreciation against future profits.
Unabsorbed Depreciation is important because it helps businesses and professionals manage their tax liability more effectively during years when profits are low or negative. Instead of losing out on the tax benefit of depreciation, taxpayers can carry forward this amount and claim it when they generate sufficient taxable income. This feature is particularly beneficial for startups, capital-intensive businesses, or those facing temporary downturns.
For compliance and filing purposes, unabsorbed depreciation must be reported accurately in income tax returns, ensuring that the carry-forward is correctly documented for future adjustment. Understanding how to claim and carry forward unabsorbed depreciation can improve cash flow management and tax planning.
For more detailed guidance on income tax rules related to unabsorbed depreciation and other tax-saving strategies, you may visit FinTax24 Income Tax Solutions.