What is development rebate reserve?

Answer 1

The development rebate reserve is created out of development rebate. It is a special allowance, which the government extends in direct taxes to encourage investment, over and above depreciation on plant and machinery installed and commissioned. It is treated as the first charged on profits after depreciation. If, owing to inadequacy of profits it cannot be so charged, it can be carried forward to be charged against the profits of subsequent years. While depreciation reduces net value of the fixed asset and cannot exceed 100% of their original cost, development rebate leaves the net value of the assets untouched. The development rebate is applicable only to plant and machinery and not to all fixed assets. Both depreciation and development rebate augment the cash flow of a business.