First establish why earlier computation was not required
For FY 2025–26 / AY 2026–27, Explanation 6 to section 43(6) of the Income-tax Act, 1961 addresses an assessee not required to compute total income for an earlier relevant previous year or years. It adjusts asset cost for book revaluation and treats the specified earlier book depreciation as depreciation actually allowed, with a corresponding revaluation adjustment. Non-filing alone does not establish this population. This guide reconstructs the opening tax evidence; it does not determine an entity's exemption or current depreciation entitlement.
Read the applicable text: Income Tax Department: section 43(6), Explanation 6 Income Tax Department: earlier-year transition.
Keep the earlier-year law and the factual population clear
The AY 2026–27 return for FY 2025–26 remains under the 1961 Act. Do not mechanically apply the later Act's tax-year section numbers. Record the specific earlier years and the legal reason computation was not required, distinguishing that conclusion from a failure to file, a nil tax liability, or an asset on which depreciation was not claimed. A first return is not automatically proof that Explanation 6 applies.
Reconstruct the asset before aggregating blocks
Start with acquisition records and the statutory actual-cost history. Identify later additions, disposals, impairment, revaluation and accounting depreciation separately. A closing net book value alone may conceal revaluation uplift and depreciation on that uplift. The three statutory limbs must be read together: cost adjustment, deemed earlier depreciation and adjustment of depreciation attributable to revaluation. Do not reduce the revaluation from cost while leaving its depreciation component uncorrected.
Use a year-by-year depreciation schedule
Separate the book depreciation relating to the relevant earlier years from current-year expense. Identify depreciation attributable to the revaluation on the same asset. Preserve asset-register versions and journals rather than substituting a current hypothetical rate for historic book charges. The illustrations assume the legal scope and statutory cost amounts are established, no other adjustments exist and revaluation is an upward uplift. Their simplified reconciliation is not a general rule for impairment, downward revaluation or every tax block.
Bridge the evidence into the tax computation once
Show original/adjusted cost, earlier book depreciation, revaluation-related depreciation, resulting deemed depreciation and reconstructed opening basis. Then apply the relevant block, use and depreciation rules independently. Book depreciation for the current year is not part of the earlier-year deemed amount merely because the financial statements show cumulative depreciation. Avoid subtracting the earlier depreciation again from a figure that already reflects it.
Treat incomplete history as an unresolved input
Obtain archived fixed-asset registers, financial statements, valuation reports and the supporting legal scope conclusion. Where one year's charge is missing, do not plug the difference using an assumed tax rate. Reconcile to asset-level records, document limitations and resolve them before finalising the deduction. This article supplies no ITR row, rate, exemption approval or automatic positive tax basis.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: No revaluation
Assume Explanation 6 applies, statutory cost is ₹100 lakh and relevant earlier book depreciation totals ₹30 lakh. On the stated simplified facts, reconstructed opening basis is ₹70 lakh. The absence of prior tax depreciation claims does not justify ignoring the deemed ₹30 lakh.
Illustrative example 2: Revaluation in both columns
Assume the cost schedule contains ₹120 lakh including ₹20 lakh revaluation uplift, and cumulative relevant depreciation ₹36 lakh includes ₹6 lakh attributable to it. Adjusted cost is ₹100 lakh, deemed depreciation ₹30 lakh and opening basis ₹70 lakh. Using unadjusted net book value would give ₹84 lakh, a ₹14 lakh difference.
Illustrative example 3: Only one revaluation leg corrected
Using the preceding facts, reducing cost to ₹100 lakh but retaining ₹36 lakh depreciation gives ₹64 lakh. Correctly adjusting both legs gives ₹70 lakh. The one-sided calculation understates the opening basis by ₹6 lakh.
Illustrative example 4: Current-year cut-off
Assume cost ₹80 lakh, earlier relevant book charges of ₹10 lakh and ₹12 lakh, and current-year book depreciation ₹8 lakh. Earlier deemed depreciation is ₹22 lakh and reconstructed opening basis ₹58 lakh. Deducting all ₹30 lakh at the opening stage would wrongly reduce it to ₹50 lakh.
Illustrative example 5: Separate asset histories
Assume one asset has adjusted cost ₹60 lakh less deemed earlier depreciation ₹18 lakh, while another has ₹40 lakh less ₹10 lakh. Reconstructed bases are ₹42 lakh and ₹30 lakh, total ₹72 lakh. Aggregate only after preserving individual evidence and applicable block classification.
Illustrative example 6: Already net figure
A working already establishes ₹70 lakh from ₹100 lakh adjusted cost less ₹30 lakh deemed depreciation. Subtracting the same ₹30 lakh again produces ₹40 lakh, understating it by ₹30 lakh. Label whether every imported figure is gross cost, cumulative depreciation or net basis.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the return period | FY 2025–26 / AY 2026–27 and the 1961 Act. |
| 2 | Establish legal scope | Why total-income computation was not required in each earlier year. |
| 3 | Distinguish non-compliance | Non-filing and nil tax do not alone prove scope. |
| 4 | Recover acquisition history | Original cost and supported statutory adjustments. |
| 5 | Map book revaluation | Asset, date and attributable amount. |
| 6 | Collect earlier depreciation | Year-wise book charges for the relevant population. |
| 7 | Isolate revaluation depreciation | Matching asset and revaluation journals. |
| 8 | Exclude current-year charges from opening history | Clear cut-off and cumulative-balance bridge. |
| 9 | Reconcile the reconstructed basis | Both limbs adjusted and no duplicate reduction. |
| 10 | Complete the current tax working | Separate block, eligibility and current-depreciation checks. |
Sixteen practitioner FAQs
1. Does a first return automatically trigger Explanation 6?
No. Establish the earlier legal non-requirement to compute total income.
2. Is non-filing the same as not being required to compute income?
No. Distinguish obligation from compliance history.
3. Does nil tax alone prove the condition?
No. It does not resolve the statutory population.
4. Which return period is addressed?
FY 2025–26 / AY 2026–27 under the 1961 Act.
5. Can opening book value be copied without analysis?
It may conceal revaluation and related depreciation; reconstruct both.
6. Does prior book depreciation matter without a tax claim?
The provision deems the specified amount to be depreciation actually allowed.
7. Why identify revaluation depreciation separately?
The cost and depreciation adjustments must work together.
8. Can only the cost uplift be removed?
That can leave a mismatched depreciation reduction; reconcile both legs.
9. Can a current tax rate replace the earlier book charges?
Not automatically. Recover the actual relevant book amounts.
10. Does this calculation establish an exemption?
No. The scope conclusion must be independently supported.
11. Is current-year book depreciation part of the opening deemed amount?
Keep it separate from the specified earlier-year history.
12. Should a net basis be reduced by the same historical depreciation again?
No. That duplicates the reduction.
13. Does the example prescribe treatment of downward revaluation?
No. Its assumptions are limited to the stated upward-uplift model.
14. Does one missing year's charge justify a plug?
No. Resolve the missing evidence rather than inventing it.
15. Can the asset-level totals be pooled before checking blocks?
Preserve asset histories and establish the applicable block classification first.
16. Does reconstructed cost guarantee current depreciation?
No. Complete current eligibility, use, rate and computation checks separately.
Official sources
Income Tax Department: section 43(6), Explanation 6 Income Tax Department: earlier-year transition