SL3 – CORPORATE TAXATION
BUSINESS INCOME - PART – 03 – SPECIFIC
DEDUCTIONS
BUSINESS INCOME - PART – 03 – SPECIFIC
DEDUCTIONS
PART 03 - DISCUSSION – 05
9. REPAIRS & IMPROVEMENTS ( SECTION 14)
PROVISIONS APPLICABLE ON OR AFTER TO 01ST APRIL 2021 AS PER THE IR
AMENDED ACT NO. 10 OF 2021
The deductions of improvements referred to in below granted for any year of assessment
commencing from April 1, 2021, with respect to a depreciable asset of a person,
(a) shall not exceed,
(i) in the case of improvement to a Class 4 depreciable asset, “Building, Structures and
similar works of permanent nature”, five percent of the written down value of the asset
at the end of the previous year
(ii) in all other cases, twenty percent of the written down value of the asset at the end of
the previous year and
(b) shall be allowed in the order in which the expenses are incurred.
• Excess expense for which a deduction shall not be allowed as a result of the
limitation mentioned in above shall be added to the depreciation basis of the
asset year (paragraph (3) of the Fourth Schedule – “Depreciation basis of a
depreciable asset”)
1 NAYANANJALEE JAYASEKARA
SL3 – CORPORATE TAXATION
Amendments from the IR Amended Act No. 45 of 2022 – Sec 14 (4) - Effective from
01.04.2022
In the event of the written down value referred in above is zero for a depreciable asset,
notwithstanding the provisions of restriction of 20% or 5% of the previous year’s tax
written down value, the deduction for improvement shall be deducted in equal amounts
apportioned over,
(a) twelve years of assessment, for a Class 4 depreciable assets.
(b) three years of assessment, for other Classes of depreciable assets.
commencing from the year of assessment in which the expenditure was incurred.
Definitions under Section - 14
Improvement - means the expenditure incurred by a person to make additions or
alterations to a depreciable asset which enhances the value of such asset, but excludes
the expenditure incurred to maintain or repair a depreciable asset which temporarily
enhances the value of such asset.
Question – 4 – Application of section 16, 4th Schedule and the section 14.
Blue Coast (Pvt) Ltd is engaging in the business of conducting a hotel to locals and
tourists. Following information applicable to financial year ended 31st March 2025.
Profit before tax Rs. 11,750,000/-.
Assets Acquired During the year (Other than specifically mentioned assets, all used for
production of income during the year.)
• Construction of two summer huts at a cost of Rs. 6,000,000/-
• Purchase of antiques Rs. 2,500,000/-
• Purchase of Buggy Cart Rs. 4,500,000/- for the sole purpose of customers visits
around the hotels to show the hotel environment including tea plantation.
• Air Conditioner purchased on 30th March 2025 at a cost of Rs. 650,000/- and
however it was fixed to the hotel room on 05th April 2025.
• New hotel building WIP – Rs. 3,800,000/-
• Two laptops at the cost of Rs. 1,400,000/-.
• The newly upgraded corporate website was recognized as an Intangible Asset and
the cost is Rs. 2,480,000/- and the actual useful lifetime is eight (8) years.
2 NAYANANJALEE JAYASEKARA
SL3 – CORPORATE TAXATION
Details of Asset Disposals
• Hotel disposed of a washing machine used in laundry which was purchased on
15th July 2020 at a cost of Rs.670,000/- The selling price was Rs. 300,000/-.
• A truck purchased under the finance lease agreements in the financial year ended
31st March 2016 sold to Rs. 2,000,000/- and the amount of lease agreement entered
was 70% of the cost of the truck and balance 30% has paid in advance. The cost of
the Truck was Rs. 4,500,000/-. Note that the lease period has been completed, and
the company properly granted the leasing allowances as per the provision of IRA
No. 10 of 2006.
• A small lorry purchased on 20th April 2023 met with an accident and is currently
under the condemned situation. The cost of the lorry was Rs. 3,500,000/- and
insurance claim received Rs. 2,000,000/-.
Additional information
• Depreciation and amortization charged to Income Statement Rs. 43,500,000/- and
Rs. 650,000/- respectively.
• Capital allowances on opening depreciable assets as per the tax computation for
the Y/A 2023/2024 Rs. 39,500,000/-.
• The hotel building was constructed on 20th May 2021 at a cost of Rs. 23Mn, has
improved by incurring Rs. 5,400,000/- during the year.
• The machinery uses in the kitchen purchased on 17th June 2019 was improved by
incurring Rs. 1,950,000/-. The cost of the machinery is Rs. 4,750,000/-.
(All above improvement cost charged to Income Statement)
Required – Compute capital allowances, balancing allowances and assessable charge
relevant for year of assessment 2024/2025.
3 NAYANANJALEE JAYASEKARA
SL3 – CORPORATE TAXATION
METHOD OF ACCOUNTING – SECTION 21
Unless otherwise provided by this Act, the timing of inclusions and deductions in
calculating a person’s income shall be made according to generally accepted accounting
principles.
An individual or entity conducting business shall account for income tax purposes on
an accrual basis.
SUMMARY OF ALL DEDUCTIONS UNDER BUSINESS INCOME
• General Deductions – Basically Disallowable Expenses (Sec.10) - Completed
• Main Deduction (Sec.11) - Completed
• Specific Deductions (Sec.12-19)
• Section – 12 – Interest Expense - Completed
• Section – 13 – Allowance for Trading Stock - Completed
• Section – 14 – Repairs & Improvements - Completed
• Section – 15 – Research and Development Expenses and Agricultural Startup
Expenses. - Completed
• Section – 15A – Marketing and Communicating Expenses. - Completed
• Section – 16 – Capital Allowances & Balancing Allowances - Completed
• Section – 17 – Losses on Realization of Business Assets & Liabilities - Completed
• Section – 18 – Deductible Amount of Finance Cost - Completed
• Section – 19 – Business or Investment Losses – Completed
• Section – 31 – Annuities, Installment Sales & Finance Leases - Completed
4 NAYANANJALEE JAYASEKARA
