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What is depreciation as per Income Tax Act? Depreciation is an allowable deduction for actual use of assets in a business or profession. Under Section 32 of the Income tax Act, 1961, the writing off of the cost of assets over its useful life has been allowed as a deduction and the depreciation rates as per Income Tax have been defined for categories of assets separately. As per accounting standards, there are two widely adopted methods of computation – Straight Line Method (SLM) and Written Down Value method (WDV).
However, as per the Income Tax Act, the method of depreciation is written down value method, except in case of generation and distribution of power where SLM method is adopted. Another provision for additional depreciation has been provided u/s 32(1)(iia) for new plant and machinery acquired and installed by an assessee engaged in the business of manufacturing or production.
Income Tax Depreciation – At a Glance
| Particulars | At a Glance |
| Relevant provision | Section 32 |
| Basis | Block of assets |
| General method | WDV |
| Tangible assets | Rates vary by asset |
| Intangible assets | Applicable prescribed rate |
| Asset used <180 days | 50% of normal depreciation |
| Additional depreciation | Subject to specified conditions |
Depreciation Rates as per Income Tax
| Asset | Rate |
|---|---|
| Residential building (excluding hotels/boarding houses) | 5% |
| Other specified buildings | 10% |
| Temporary structures | 40% |
| Furniture & fittings | 10% |
| General plant & machinery | 15% |
| Motor cars | 15% |
| Computers & specified equipment | 40% |
| Intangible assets | 25% |
- Buildings used for water treatment or supply projects in infrastructure facilities: 40%
- General plant and machinery: 15%
- Motor cars (excluding hire businesses): 15%, with a higher rate of 30% for cars acquired between August 23, 2019, and April 1, 2020.
- Vehicles used for hire (e.g., taxis, buses) have a rate of 30%, increasing to 45% if purchased within the same date range.
Special Equipment: Items such as computers, medical equipment, air pollution control devices, and energy-saving devices have varying rates, often 40% for faster write-offs.
Books: Books owned by professionals or businesses (like lending libraries) may be depreciated at rates between 60% 100% depending on whether they are annual or not.
Section 32 – Depreciation
Depreciation is allowed on the written down value of the block of assets at the depreciation rates as per Income Tax Act on both tangible as well as intangible assets except goodwill of a business or profession. Tangible assets include factory, equipment, plant, machinery while intangible assets include patents, trademarks, copyright and franchise. Depreciation is calculated on the block of assets basis and thus individual assets lose their identity.
The end user of the asset is the deciding factor for depreciation rate. For example, if the assessee is in the business of leasing out vehicles, then the rate will be higher i.e. 30% instead of 15% on plant and machinery.
Method of depreciation
| As per Companies Act, 2013 | As per Income Tax Act, 1961 |
| Straight Line Method (SLM) | Straight Line Method (SLM) in case of generation and distribution of power |
| Written Down Value Method (WDV) | |
| Unit of Production Method | Written Down Value Method (WDV) |
Block of Assets
Depreciation under Income Tax follows the block of assets principle where each block is a selection of assets belonging to the same asset class, has similar life and similar use case. The depreciation rates as per Income Tax Act for each such class of assets have been defined in the rules.
Conditions to be fulfilled for claiming depreciation
There are certain conditions that have to be fulfilled for claiming deduction as explained below:-
- The asset must be wholly or partly owned by the assessee. Registration of the same under the Registration act is not determinative of ownership. The assessee for claiming dedecution is decided on the basis of beneficial ownership.
- Depreciation is allowed when the asset is actually put to use and not if the asset was ready to use and not put to actual use.
- The asset must be used for business or profession purposes, if the asset is put to use for both personal as well as business purposes, the amount be will be proportionately allowed to the extent it was used for business purposes.
- It is mandatory for the assessee to claim deduction of depreciation while computing his taxable income except if he is opting for presumptive taxation, where it is assumed that the impact of depreciation has already been considered.
- Revaluation of assets does not have any impact on depreciation computation as per the Income Tax Act i.e. the revaluation amount is ignored for computation.
180 Days Rule – Proviso to Section 32(1)
An important proviso to Section 32(1) is that when an asset is put to use for less than 180 days, the deduction amount on such asset will be restricted to 50% in the year of acquisition i.e. since the actual put to use date is less than half the year, therefore, full depreciation for that year cannot be allowed on the asset. This can be checked using the Income Tax Calculator.
Transfer of assets
In case of succession, amalgamation and demerger, the depreciation is allowed to both the parties in the ratio of the number of days for which the assets were used by them, however, the amount is computed assuming that no such succession, amalgamation or demerger has taken place.
Section 32(1)(iia) – Additional Depreciation
In case of any new plant or machinery other than ships and aircrafts which has been acquired and installed by an assessee engaged in the business of manufacture or production of any article or in the business of generation, transmission or distribution of power, an additional depreciation of 20% shall be allowed as deduction. However, there are certain restrictions for such deduction:-
- The deduction will not be allowed for second hand goods whether Indian or imported.
- If the asset is installed in the office premises or residential space, then no deduction will be allowed.
- If the deduction for the asset is provided for the complete amount already under any other section like for scientific research (100%), no deduction will be available here.
Assets acquired on hire purchase
Under the hire purchase agreement, the hired asset shall eventually become the property of the hirer, or give the hirer an option to purchase the asset. Accordingly, the periodical payments made by the hirer would be broken into interest (to be allowed as deduction to the hirer) and payment on account of capital cost of the asset. Depreciation is thus, allowed to the hirer on the initial value of the asset, i.e., the amount for which the hired item would have been sold for cash at the date of agreement.
About the Author – This article is written by FCA Eshita Krishna , an experienced Chartered Accountant with advanced ICAI certifications in DISA, Anti-Money Laundering, Real Estate Laws, and Forex & Treasury Management. With strong expertise in direct and indirect tax, audit, risk advisory, financial planning, and financial management, she delivers accurate, experience-backed financial insights to readers.