Section 32 of the Income-tax Act, 1961 allows taxpayers to claim depreciation on eligible assets owned and used for business or professional purposes. These assets can include buildings, machinery, plant, furniture, and certain intangible assets.
The Income Tax Department prescribes different depreciation rates based on the type and classification of the asset. For most eligible assets, tax depreciation is calculated using the Written Down Value (WDV) method on the relevant block of assets.
Depreciation reduces taxable business or professional income. However, taxpayers must meet the applicable ownership, usage, and other conditions before claiming the deduction.
Key Takeaways
- Section 32 of the Income-tax Act, 1961 allows depreciation on eligible assets owned and used for business or professional purposes.
- Tax depreciation is generally calculated on the Written Down Value (WDV) of a block of assets.
- Different asset categories have different prescribed depreciation rates.
- Common rates include 5% for certain residential buildings, 10% for other buildings and furniture, 15% for general plant and machinery, and 40% for specified assets.
- The 180-day rule can limit the depreciation claim to 50% of the normal rate when an asset is put to use for less than 180 days in the relevant year.
- Depreciation rates for tax purposes differ from book depreciation used for financial reporting.
- The applicable rate should be checked against the latest Income Tax Department depreciation schedule, as rates and provisions can change.
What is a Block of Assets?
A block of assets is a group of assets that fall under the same depreciation rate. For tax purposes, depreciation is generally calculated on the Written Down Value (WDV) of the block rather than separately for each asset.
Common blocks include:
- Buildings: Residential and non-residential buildings fall under prescribed categories.
- Furniture and fittings: Includes furniture and fittings used for business or professional purposes.
- Plant and machinery: Covers general plant and machinery and certain specified equipment.
- Computers and computer software: Eligible computers and specified software fall under a separate depreciation category.
- Intangible assets: Includes eligible assets such as patents, copyrights, trademarks, licences, and franchises.
Grouping assets into blocks simplifies depreciation calculations and determines which prescribed rate applies to the assets.
Who Can Claim Depreciation Under Section 32?
Taxpayers can claim depreciation when they meet the conditions prescribed under Section 32 of the Income-tax Act, 1961. The key requirements are:
- Ownership: The taxpayer must own the asset wholly or partly.
- Business or professional use: The taxpayer must use the asset for business or professional purposes.
- Asset must be put to use: The asset must be used during the relevant financial year to qualify for depreciation.
- Use for less than 180 days: If a taxpayer acquires an asset during the year and puts it to use for less than 180 days, only 50% of the normal depreciation is generally allowed for that year.
- Eligible asset: The asset must fall within a category for which the Income-tax Rules prescribe depreciation.
Which Method is Used for Tax Depreciation?
Tax depreciation is generally calculated using the Written Down Value (WDV) method under the Income-tax Act. Under this method, depreciation applies to the WDV of the relevant block of assets at the prescribed rate.
The WDV changes each year based on the additions, sale of assets, and depreciation claimed during the previous year.
A different method may apply to certain businesses. For example, undertakings engaged in the generation or generation and distribution of power can claim depreciation under the Straight Line Method (SLM), subject to the applicable provisions.
Depreciation Rates Under Income Tax Act for FY 2026-27
The Income Tax Department prescribes depreciation rates based on the block of assets and its classification. The rates apply to the WDV of the relevant block.
The following table covers the commonly used depreciation rates for FY 2026-27:
| Asset / Block of Assets | Depreciation Rate |
|---|---|
| Residential buildings, except hotels and boarding houses | 5% |
| Other buildings | 10% |
| Temporary structures, such as wooden structures | 40% |
| Furniture and fittings, including electrical fittings | 10% |
| General plant and machinery | 15% |
| Motor cars, other than those used on hire | 15% |
| Motor buses, lorries, and taxis used on hire | 30% |
| Aeroplanes and aeroengines | 40% |
| Computers and computer software | 40% |
| Specified renewable energy devices | 40% |
| Eligible intangible assets | 25% |
These are the commonly applicable rates. The official depreciation schedule contains additional asset-specific categories, conditions, and special rates. Therefore, businesses should check the applicable block and prescribed entry before claiming depreciation.
Depreciation Rate for Intangible Assets
The Income-tax Rules also allow depreciation on certain intangible assets used for business or professional purposes. These assets are grouped separately from tangible assets such as buildings, machinery, and furniture.
- Know-how
- Patents
- Copyrights
- Trademarks
- Licenses
- Franchises
- Other similar business or commercial rights
The prescribed depreciation rate for eligible intangible assets is 25%. The asset must be owned and used for business or professional purposes to qualify for depreciation.
Special Depreciation Rates For Certain Assets
Some assets receive specific depreciation rates based on their nature or use. These rates can differ from the general rates for buildings, furniture, and plant and machinery.
Examples include:
- Energy-saving devices: Certain specified energy-saving equipment qualifies for a 40% depreciation rate.
- Pollution-control equipment: Certain specified pollution-control machinery qualifies for a 40% rate.
- Renewable energy devices: Specified renewable energy equipment can qualify for a 40% rate.
- Certain medical equipment: Specific medical equipment may qualify for rates prescribed separately under the depreciation schedule.
- Books and scientific equipment: Certain specified books and scientific equipment have separate depreciation rates.
The applicable rate depends on the exact asset and its classification under Appendix I of the Income-tax Rules. Always verify the relevant entry before claiming depreciation.
What is the 180-Day Rule for Depreciation?
The Income-tax Act limits the depreciation claim when you put an asset to use for less than 180 days during the financial year of acquisition.
- Used for 180 days or more: You can generally claim the full applicable depreciation rate.
- Used for less than 180 days: You can generally claim only 50% of the normal depreciation for that year.
- From the following year: The asset becomes part of the relevant block, and the applicable depreciation rate generally applies normally.
Example: If a machine costing ₹5,00,000 has a depreciation rate of 15% and you use it for less than 180 days, the depreciation for that year would generally be ₹37,500 instead of ₹75,000.
The remaining depreciation is not lost. The asset continues in the relevant block for subsequent depreciation calculations.
How to Calculate Depreciation Under the WDV Method?
Under the Written Down Value (WDV) method, depreciation is calculated on the opening WDV of the relevant block at the prescribed rate. Additions and deductions from the block also affect the calculation.
Formula: Depreciation = WDV of the block × Applicable depreciation rate
Example
Suppose a block has an opening WDV of ₹5,00,000 and the applicable depreciation rate is 15%.
Depreciation = ₹5,00,000 × 15% = ₹75,000
The closing WDV will be:
₹5,00,000 − ₹75,000 = ₹4,25,000
The closing WDV becomes the opening WDV for the next financial year, subject to additions, disposals, and other applicable provisions.
What is Additional Depreciation Under Section 32?
Additional depreciation is an extra deduction available on certain eligible new plant and machinery used for business. It is available to specified businesses that meet the conditions under Section 32(1)(iia).
- It generally applies to eligible new plant and machinery acquired and installed by qualifying businesses.
- It is available in addition to the normal depreciation.
- The rate is generally 20% of the actual cost of eligible assets.
- Certain eligible undertakings in specified areas may qualify for an additional 20%, subject to the applicable conditions.
- Additional depreciation is subject to specific exclusions and conditions under the Income-tax Act.
The eligibility, rate, and timing of the deduction depend on the nature of the business and the asset. Therefore, businesses should verify the applicable conditions before claiming additional depreciation.
Income Tax Depreciation vs Book Depreciation
Tax depreciation and book depreciation serve different purposes. Tax depreciation helps calculate taxable income, while book depreciation records the reduction in an asset’s value for financial reporting.
| Basis | Income Tax Depreciation | Book Depreciation |
|---|---|---|
| Purpose | Calculates taxable business or professional income | Records depreciation in financial statements |
| Governing rules | Income-tax provisions | Companies Act and applicable accounting standards |
| Calculation | Generally based on WDV and prescribed rates | Based on useful life and applicable accounting requirements |
| Depreciation rates | Prescribed under the Income-tax Rules | Determined under the applicable accounting framework |
| Effect | Reduces taxable income | Reduces accounting profit |
The two amounts can differ because they follow different rules and depreciation rates. These differences may also create temporary differences for deferred tax purposes.
What Happens When You Sell a Depreciable Asset?
The sale of a depreciable asset affects the block of assets rather than being treated as a simple profit or loss on the individual asset. The tax treatment depends on the value of the block after the sale.
- Sale proceeds reduce the block: The money received from selling an asset is deducted from the WDV of the relevant block.
- New asset purchases increase the block: The actual cost of eligible assets acquired during the year is added to the block.
- Block continues to exist: If the block continues to have assets and the conditions are met, depreciation is calculated on the resulting WDV.
- Block ceases to exist: If all assets in the block are sold and the block ceases to exist, the applicable capital gains provisions may apply.
The exact tax treatment depends on the assets in the block, their sale value, and the applicable provisions of the Income-tax Act.
What Records Should You Maintain for Depreciation?
Maintaining accurate asset records helps businesses support their depreciation claims and calculate the correct WDV. Keep the following records for each eligible asset:
- Purchase invoices: Proof of the asset’s actual cost and date of acquisition.
- Asset register: Details of assets owned and their classification.
- Date put to use: Records showing when the asset was first used for business or professional purposes.
- Depreciation details: Rate, amount claimed, and closing WDV for each relevant block.
- Sale or disposal records: Details of assets sold, including the sale consideration and date.
- Supporting documents: Agreements, payment records, installation documents, and other relevant evidence where applicable.
Proper records make it easier to calculate depreciation and substantiate the deduction during tax assessment or scrutiny.
