Wear and tear

Wear and tear refers to the reduction in the value of an asset that occurs due to regular use, aging, or natural deterioration over time. It is a normal and expected decline in the asset’s utility or efficiency.

Key Features Nature of Wear and Tear :

Gradual loss of value caused by use in daily operations Affects tangible assets like buildings, machinery, vehicles, and equipment Relevance in Accounting and Taxation Businesses are allowed to claim deductions for wear and tear (often called depreciation) when calculating taxable profits Helps in reflecting the true cost of using assets over their useful life Assets Commonly Subject to Wear and Tear Buildings and structures Plant and machinery Vehicles and equipment Furniture and office equipment.

Example: A factory machine purchased for ₹1,00,000 may lose ₹10,000 in value each year due to wear and tear. This reduction can be claimed as a deduction for income tax purposes, lowering taxable profits.