I have a general query regardilng taxation
SUJATA PAGARE
(Querist) 27 September 2013
This query is : Resolved
Can I unsderstand from expert the principals underlying capital expenditure and revenue expenditure and please explain the same byh giving some illustrations.
Raj Kumar Makkad
(Expert) 27 September 2013
You shall have to post your query in the forum section of this site for this purpose.
Ms.Nirmala P.Rao
(Expert) 27 September 2013
Dear Client,
Capital expenditure is got out of expenditure on capital assets such as Land, Building and Equipment and revenue expenditure is what is expended for maintenance and repairs of fixed assets and you can claim deductions on account of them under IT law.
A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.
A revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.
Now, let us understand distinction between capital receipt and revenue receipt and their respective taxability. A car dealer receiving profits out of selling his cars is treated as revenue receipts and those profits are taxable. Whereas a car owner not being a car dealer selling his car , the money he gets being non trading in nature is treated as a capital receipt and not taxable.
V R SHROFF
(Expert) 28 September 2013
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