Businesses face detailed conditions on eligible assets, depreciation rates, disposal gains and leased property ISLAMABAD: The Federal Board of Revenue (FBR) has laid down detailed conditions for claiming depreciation deductions against business income for Tax Year 2027, covering eligible assets, calculation methods, partial business use, disposal of assets and specific restrictions. The provisions are contained in Section 22 of the Income Tax Ordinance, 2001, updated by the FBR up to June 30, 2026. Under the rules, taxpayers can claim depreciation on depreciable assets used in a business during the relevant tax year. However, depreciation cannot be claimed on additions to capital assets where tax required to be deducted under Sections 152 or 153 has not been deducted and deposited with the government. Such amounts cannot be included in the cost of assets for calculating tax depreciation. Depreciation is generally calculated by applying the relevant rate prescribed in Part I of the Third Schedule to the written-down value of the asset at the beginning of the tax year. Depreciation limited for partial business use Where an asset is used partly to earn taxable business income and partly for another purpose, the depreciation deduction is restricted to the proportion attributable to its use in generating taxable business income. For such assets, the written-down value is calculated on the basis that the asset was used solely to derive taxable business income. For an asset acquired during the tax year, the written-down value is determined by reducing its cost by any initial allowance available under Section 23. For assets acquired in earlier years, the written-down value represents the original cost less total depreciation deductions, including any initial allowance, already claimed in previous tax years. The FBR has also clarified that depreciation is considered to have been allowed during a period in which a business’s income is exempt if its buildings, furniture, plant or machinery are used for business purposes during that period. Once the exemption period ends, the written-down value is determined after accounting for the relevant depreciation and initial…