Depreciation is first deducted from the income chargeable to tax under the head "Profits and gains of business or profession". If such depreciation could not be fully adjusted against such income chargeable to tax in that previous year, the unabsorbed portion shall be added to the amount of depreciation for the following year and shall be deemed to be the part of depreciation for that year (similar treatment would be given to other allowances as mentioned above).However, in the case of set off, following order of priority is to be followed:
First adjustments are to be made for current scientific research expenditure, family planning expenditure and current depreciation.
Second adjustment is to be made for brought forward business loss.
Third adjustments are to be made for unabsorbed depreciation, unabsorbed capital expenditure on scientific research or on family planning.