7 - Capital Allowances

Abstract

This chapter focuses on various tax laws related to capital allowances. Capital allowances are a method of standardized depreciation allowances for tax purposes. Capital allowances are given as a deduction from the taxable income in accordance with the Capital Allowances Act, 1968. The allowances are given mainly to traders or self-employed persons but can also be claimed by employees who are necessarily obliged to use capital equipment during their employment. Normally, the allowances are given as deduction from taxable income but in certain circumstances, they are given by means of tax repayment, for example, on leased industrial buildings, leased plant, or agricultural buildings and patent rights. The words plant and machinery are not statutorily defined and for this reason have been defined by Case Law. Section 7 of the Capital Allowances Act, 1968, defines an industrial building as a mill, factory, or warehouse attached to manufacture, buildings used for the trade of catching fish, etc.