Can You Claim Depreciation on Duty-Free Machinery Under MOOWR? Yes — Here’s Why
If your business is planning to register under the MOOWR scheme (Manufacture and Other Operations in Warehouse Regulations, 2019), one of the most common queries is:
Can depreciation be claimed under the Income Tax Act on machines imported duty-free under the MOOWR scheme?
At Global Tax Masters, we deal with this question regularly. And the answer is yes – depreciation is fully allowed. Let us explain how this works in simple terms.
Understanding the MOOWR Scheme
Under the MOOWR scheme, manufacturers in India can import capital goods (machinery, equipment, etc.) without paying Basic Customs Duty (BCD) and IGST at the time of import. This allows significant savings and cash flow benefits, especially for capital-intensive industries.
Since the machinery is imported without payment of customs duties, many business owners wonder whether they can claim depreciation under the Income Tax Act on such assets. The confusion is understandable, but the law is clear on this.
Income Tax Act on Depreciation – What the Law Says
Section 32 of the Income Tax Act, 1961 allows depreciation on tangible assets like plant and machinery, as long as:
- The asset is owned by the assessee (wholly or partly), and
- It is used for business or professional purposes during the relevant financial year.
Nowhere does the Income Tax Act mandate that customs duty must be paid on an imported machine to allow depreciation. This means depreciation under MOOWR scheme is fully admissible, subject to the normal conditions of ownership and usage.
Actual Cost – As Per Section 43(1)
The concept of “actual cost” is defined under Section 43(1) of the Act. It means the total cost of the asset to the taxpayer, reduced by any amount met by another person or government authority (like a subsidy or grant).
In the case of the MOOWR scheme, there is no subsidy or grant involved. The government is only deferring the duty, not waiving it. So, the invoice value of the machine becomes the actual cost, and full depreciation can be claimed on this amount.
Practical Example
Let’s say your company imports a CNC machine worth Rs. 2 crores under the MOOWR scheme and saves Rs. 40 lakhs in customs duties.
For income tax purposes:
- Actual cost of the machine = Rs. 2 crores
- Depreciation will be calculated on Rs. 2 crores as per applicable rates
This means that depreciation on duty-free machines imported under MOOWR is absolutely permissible under income tax law.
Clarifications from CBDT?
As of today, there is no circular or notification from the CBDT disallowing depreciation on machines imported under MOOWR. Similar treatment has always been followed under schemes like EPCG and SEZ, where depreciation is allowed even on duty-free imports.
Final Words from Global Tax Masters
At Global Tax Masters, we are India’s leading consultants for MOOWR registrations and compliance. We have helped manufacturers across sectors unlock significant cost savings and simplify their import operations. We also guide clients on how depreciation under the MOOWR scheme is treated under the Income Tax Act, ensuring there is no ambiguity in their tax planning.
If you are exploring MOOWR or have already imported capital goods under the scheme, rest assured — you are fully eligible to claim depreciation on the entire cost of the machinery.
Have more questions on MOOWR or depreciation on duty-free machines? Contact Global Tax Masters today.