(1) The depreciable property shall be categorized as follows:-

(2) Any depreciable property owned and used by any person in any income year in making income from a business or investment shall be placed in the category as follows at the time when it came under ownership or came in use for the first time, and the categories shall be deemed as the category of the depreciable property of that person in that year:

(a) In respect of the similar properties under ownership or in use of that person, the depreciable properties referred to in categories "A", "B", "C" or "D" in the same category of other properties of that category.

(b) In respect of the depreciable property referred to in category "E", they have to be placed under different classes notwithstanding that the properties are of the same category.

(3) The cost incurred in the excavation of natural resources, extraction of minerals and its development in the course of earning income from a business shall be deemed as the cost incurred in purchasing the property for the business related with that income.

2. Depreciation cost:

(1) Any person may, in any income year, deduct cost equivalent to the depreciation in that year of the property of each class computed pursuant to Sub-sections (2) and (6) of this Section, for the classes of the depreciable properties belonging to that person.

(2) A person has to compute the depreciation deduction of the properties of the class in his income year by using the following formula:

A x B

"A" means the depreciation base amount in the class of the property at the end of that income year.

"B" means the rate of depreciation deduction mentioned in Section 3 of this Schedule, applicable to that class.

(3) The depreciation base amount of the depreciable properties in categories "A", "B", "C" or "D" at the end of any income year has to be set by subtracting the amount referred to in the following clause (c) from the total of the following clauses (a) and (b).

Provided that, the amount so subtracted shall not be less than zero.

(a) The remaining amount after deducting depreciation cost of that class computed pursuant to Sub-section (2) and (6) from the depreciation deduction base amount of that class at the end of last year.

(b) The expenses referred to in Section 5 of this Schedule or added to the class within that income year and incurred for the properties added to that class, on the depreciation deduction base amount of that class in that year.

(c) Any amount derived from the disposal of any property of that class in that year.

(4) The depreciation deduction base amount of each depreciable property in category "D" at the end of any income year shall be a total sum of the following amounts:-

(a) The depreciation deduction base amount of the depreciable properties remaining in the class at the end of last income year, and

(b) The amount added pursuant to Sub-section (5) for the property within that class to the depreciation deduction base amount in that fiscal year.

(5) The cost incurred for any depreciable property included in any class of the depreciable property belonging to any person has to be added as follows to the depreciation base amount of the class concerned:-

(a) That property has to be computed as per the following formula and added by considering the first value in the time whichever is later out of the time in which that property is included in the class pursuant to Section 1 and the time in which expenses are made to acquire that property:

A/3xB

For purposes of this Clause, "A' shall have the following value for the following period:-

i. The end time of the period from the beginning of the income year to the last day of Poush (mid January) shall be three,

ii. The period from Magha (January/February) to the last day of Chaitra (13 April) shall be two, and

iii. The period from Baisakh (April/May) to the last day of the income year shall be one.

(b) The remaining part of cost shall be added in the income year following the income year in which the first part was added. Provided that, the class was not dissolved pursuant to Sub-section (2) of Section 4 of this Schedule in the meantime of that period.

(6) In cases where, in deducting the depreciation cost to be computed pursuant to Sub-section (2) of this Section from the depreciation deduction base amount of the depreciable properties of categories "A", "B", "C" or "D", it be less than two Thousand Rupees, all the remaining amounts has to be computed for additional depreciation cost.

3. Rate of depreciation:

(1) The rate of depreciation applicable in the case of each class mentioned in Sub-section (2) of Section 2 of this Schedule shall, subject to Sub-section (2), be as follows:-

(2) The projects mentioned in Sub-section (2) of Section 19 of this Act and the entities mentioned in Sub-sections (3) and (4) of Section 2 of Schedule-1 shall get an addition of one thirds to the rate of depreciation applicable to the depreciable properties mentioned in
categories "A", "B", "C" and "D" mentioned in Sub-section (1) of this Schedule.

4. Disposal of depreciable property:

(1) In cases where clause (a) is more than clause (b) in computing he disposal of the depreciable property or properties used in the business or investment of any person, such excess amount has to be included in the income.

(a) The incomings derived from the disposal of his depreciable property in any income year falling in categories "A", "B", "C" or "D" of the class of an person,

(b) The depreciation deduction base amount remaining at the end of that year of the class pursuant to Subsection (3) of Section 2 of this Schedule, without including the income derived from the disposal.

(2) In cases where any person disposes all the properties in the class of depreciable property of that person prior to the expiration of any income year, the class shall be deemed to be dissolved, and it shall be as follows:-

(a) Where the depreciation deduction amount to be set in computing depreciation as per the following formula of the property in the class of depreciable property is more than the depreciation deduction base amount, that person shall be deemed to have received such excess amount for that year.

A-B

or

(b) Where the depreciation deduction amount to be set in computing depreciation as per the following formula of the property in the class of depreciable property is more than the depreciation deduction base amount, that person shall get remission of such excess amount of expenses in that year.

B–A

Explanation: For purposes of this Section,-

(1) "A" means the incomings derived or to be derived by any person from the disposal of that property in that year,

(2) "B' means the total amount of clauses (i), (ii) and (iii) as follows:-

(i) The remaining value of the descending system of the class in that year,
(ii) The outgoings of that year added to the depreciation base amount of the class, and
(iii) The outgoings to be added to the depreciation base amount of the class in the forthcoming year pursuant to Sub-section (5) of Section 2.

(3) For purposes of this Schedule, the remaining value of the descending system of the class of depreciable property in any income year means the following amount:-

(a) In the case of categories "A", "B", "C" or "D" of the class, of any person, the amount to be set by subtracting depreciation, if any, of the class computed pursuant to Sub-sections (2) and (6) of Section 2 of this Schedule for that year from the depreciation base amount remaining at the end of the preceding income year of that class,

(b) In the case of category "D" of the class, the amount to be set by subtracting all the expenses of the preceding income years which the person is allowed to deduct pursuant to Sub-section (1) of Section 2 of this Schedule 2 from the depreciation base amount remaining at the end of preceding income year.