Quick Summary
Tax Depreciation is a deduction allowed for the wear and tear of tangible assets used for business. It is calculated using the Written Down Value (WDV) method or Straight Line Method as per the Income Tax Act.
Depreciation under the Income Tax Act is a deduction allowed for the decline in value of tangible assets (building, machinery, plant, furniture) used for business purposes. It accounts for wear and tear, exhaustion, and obsolescence of assets.
Methods of Depreciation
- Written Down Value (WDV) Method: Most common method for tax purposes. Depreciation is calculated on the reducing balance of the asset each year.
- Straight Line Method (SLM): Used for certain assets like patents, copyrights. Fixed percentage on original cost each year.
Depreciation Rates (Block of Assets)
| Block of Assets | WDV Rate |
|---|---|
| Buildings - Residential | 5% |
| Buildings - Commercial/Industrial | 10% |
| Furniture and Fittings | 10% |
| Plant & Machinery - General | 15% |
| Motor Cars (not for hire) | 15% |
| Computers including software | 40% |
| Plant & Machinery - Special (energy saving, etc.) | 40% |
| Intangible Assets (patents, trademarks) | 25% |
Additional Depreciation (Section 32)
New manufacturing companies and enterprises can claim additional depreciation:
- 20% additional depreciation: For new plant and machinery acquired and installed by manufacturing units
- 35% additional depreciation: For new plant and machinery installed in notified backward areas
- Available in the year of installation
- Second-hand or imported machinery not eligible
Conditions for Claiming Depreciation
- Asset must be owned by the assessee ( wholly or partly)
- Asset must be used for business or profession
- 50% depreciation if asset used for less than 180 days in the year
- Mandatory to claim depreciation (cannot be skipped voluntarily)
- Depreciation is first deducted from block of assets, then from WDV
Key Points
- Deduction for wear and tear of assets
- WDV method generally used for tax
- Rates vary from 5% to 40%
- Additional 20% for new manufacturing assets
- 50% rate if used less than 180 days
- Claimed on block of assets concept