Depreciation in Income Tax: Rates and Calculation Guide

Introduction

Depreciation is a key deduction available under India’s tax laws that allows businesses and professionals to claim the reduction in value of assets over time. Under the Income‑tax Act, certain assets used for business or profession can be depreciated at prescribed rates and methods, reducing taxable income. The Act groups assets into “blocks of assets” and prescribes depreciation rates for each block, generally using the Written‑Down Value (WDV) method. Knowing how depreciation works, what rates apply, when you can claim it, the correct calculation, how blocks are formed, and how it affects your tax position is important for accurate compliance and tax planning.

What is Depreciation under the Income Tax Act?

Depreciation under the Income Tax Act refers to the deduction allowed for the reduction in the value of a tangible or intangible asset because of wear and tear, usage, obsolescence or efflux of time, when such asset is used for business or profession. The relevant provision is Section 32 of the Income‑tax Act, 1961. The asset must be owned by the taxpayer and used for business or profession in that previous year. Intangible assets (such as patents, copyrights, trademarks, licences) also qualify. The deduction is typically computed on the Written‑Down Value (WDV) of a “block of assets” rather than individual assets. Multiple assets of similar nature are grouped. The method and rate of depreciation are specified in the Act and Rules.

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Methods of Calculation

Under the Income Tax Act, depreciation is computed using the following approach:

• Written Down Value (WDV) Method: This is the standard method under the Act for most asset blocks. Under this method, depreciation is calculated on the opening WDV of the block of assets at the prescribed rate.
• Straight Line Method (SLM): In limited cases (for example, power‑generating units), the SLM method may apply under the Act.
• Additional rules apply if assets are purchased and used for less than 180 days in the previous year (often, only a half-rate is allowed in that year).

Formula (WDV Method)Opening WDV of block × Depreciation rate (%) = Depreciation allowed for the year.
Closing WDV of block = Opening WDV − Depreciation allowed.

Note: “Block of assets” means all assets falling in the same class of assets for which the same rate of depreciation is prescribed, and they are used for similar purposes.

Depreciation Rates under the Income Tax Act

Here is a summary table showing typical depreciation rates for common asset blocks under the Act (for business use). These are illustrative; you must check the current schedule for exact rates.

Asset Category

Depreciation Rate (WDV)

The building is used mainly for residential purposes

5%

Building other than above (non‑residential)

10%

Furniture and fittings

10%

Computers and software

40%

Plant & Machinery (general)

15%

Motor vehicles for personal use

15%

Motor vehicles for commercial/hire

30%

Ships

20%

Aircraft

40%

Intangible assets (patents, copyrights etc.)

25%

Additional notes: As per recent rule changes, depreciation rates above 40% for plant & machinery blocks may be subject to restrictions (for example, rates may be capped)

How to Calculate Depreciation – Step by Step

Step 1: Identify the asset and block of assets

First, determine when the asset was acquired, the cost of the asset, the nature of the asset (building, machinery, intangible, etc.), and check the prescribed rate for that class.

Step 2: Determine the opening WDV of the block

If it is the first year of purchase, opening WDV = actual cost of asset. In subsequent years, opening WDV = previous year's closing WDV.

Step 3: Check usage period

If the asset is used for less than 180 days in the previous year, only 50% of the rate is allowed in that year.

Step 4: Apply the depreciation rate

Depreciation = Opening WDV × Rate of depreciation %.

Step 5: Compute closing WDV

Closing WDV = Opening WDV − Depreciation allowed.

Example:

Assume a machine costing ₹ 10,00,000 is purchased and put to use on 1 July in FY 2025‑26, which belongs to the plant & machinery block at a rate 15%.

• Opening WDV = ₹ 10,00,000
• Depreciation = ₹ 10,00,000 × 15% = ₹ 1,50,000
• Closing WDV = ₹ 10,00,000 − ₹ 1,50,000 = ₹ 8,50,000

If the asset was used for less than 180 days in the previous year, say after 1 October, and you are in the first year, rate would be half of 15% = 7.5%.

Important Rules & Conditions

• The asset must be used for business or profession; if used partly for personal purposes, only the business portion qualifies.
• Land is not depreciable; only buildings, machinery, and intangible assets are eligible.
• Assets cannot claim depreciation if the purchase cost was claimed as an application of income in some other section (e.g., Section 11(6) for charitable trusts).
• When a block of assets is sold or disposed of, closing WDV is computed after deduction of sale proceeds, and depreciation is allowed accordingly.
• The Act prescribes that assets are grouped into “blocks” and the depreciation is calculated on the block-wise WDV, not asset‑wise.

Why Depreciation Matters for Tax

• Claiming depreciation reduces taxable income, thus lowering tax liability.
• By understanding rates and blocks, businesses can plan investments and the timing of asset purchases to get maximum benefit.
• Ensures compliance with tax norms—incorrect rates or methods may lead to disallowance.
• Differentiation between book depreciation (for accounting) and tax depreciation (for income tax) is important; tax depreciation may differ in rate and method.

Conclusion

Depreciation under the Income Tax Act is a powerful deduction tool for businesses and professionals engaged in commerce, manufacturing, services or professions. By grouping assets into blocks, applying correct depreciation rates, and using the WDV method, taxpayers can legitimately reduce taxable income while staying within compliance. It’s essential to classify assets correctly, apply the right rate, factor in the usage period (180 days rule), and keep records of cost and block opening/closing values. With the rates and calculations covered above, you should be equipped to compute depreciation accurately for your tax filings.