Depreciation Calculator As Per Income Tax Act
Depreciation Calculator
Depreciation Results:
Depreciation as per Income Tax Act (Section 32) – Rules & Provisions
Depreciation is allowable as expense in the Income Tax Act, of 1961 based on the block of assets on the Written Down Value (WDV) method. Depreciation on the Straight Line Method (SLM) is not allowed. SLM method is only permitted for power-generating units.
Eligible Assets for Depreciation
Depreciation is allowed on the following assets:
- Tangible Assets: Buildings, machinery, plant, furniture, and motor vehicles.
- Intangible Assets: Patents, trademarks, copyrights, know-how, licenses, franchises, etc.
Depreciation Methods
Under the Income Tax Act, depreciation can be calculated using the following methods:
- Written Down Value (WDV) Method:
- Under this method, depreciation is applied to the reduced balance of the asset’s value after subtracting the depreciation from the previous year(s).
- This method is mandatory for all assets except for power-generating units.
- Straight Line Method (SLM):
- This method allows depreciation to be calculated as a fixed percentage of the original cost of the asset each year.
- This method is only allowed for power-generating units.
Block of Assets
The Income Tax Act uses the Block of Assets concept to simplify depreciation. A Block of Assets refers to a group or collection of assets that are treated as a single unit for the purpose of calculating depreciation. Belong to the same category or class (e.g., machinery, buildings, furniture). Share the same depreciation rate under the Income Tax Act.
Rates of Depreciation
The Income Tax Rules prescribe depreciation rates for various classes of assets. The Appendix I of the Income Tax Rules provides the rates for different asset classes, as revised over time.
Depreciation Rates (as per Income Tax Act 1961):
| Asset Class | Depreciation Rate (WDV Method) |
|---|---|
| Residential Buildings | 5% |
| Non-Residential Buildings | 10% |
| Furniture and Fixtures | 10% |
| Plant and Machinery (General) | 15% |
| Motor Cars (used for business) | 15% |
| Motor Lorries (used for transport) | 30% |
| Computers and Software | 40% |
| Intangible Assets (e.g., patents) | 25% |
Depreciation on Vehicles
Depreciation rates on vehicles, especially under business use, are distinct:
- Motor Cars (used for business purposes): 15%
- Commercial Vehicles (heavy-duty lorries, trucks): 30%
Intangible Assets
Depreciation is allowed on intangible assets such as patents, copyrights, trademarks, licenses, etc., at the rate of 25% on the WDV basis.
Half-Year Depreciation Rule
- If an asset is purchased and put to use for less than 180 days in the financial year, only half of the prescribed depreciation rate is allowed for that year.
- Full depreciation is allowed only if the asset is used for 180 days or more during the financial year.
Additional Depreciation – Section 32(1)(iia)
Additional depreciation can be claimed under Section 32(1)(iia) of the Income Tax Act for new machinery or plant (except ships and aircraft) acquired by a manufacturing or production business. Some key points:
- Additional depreciation is allowed at 20% of the actual cost of new plant and machinery.
- If the asset is used for less than 180 days, only 10% additional depreciation is allowed in the first year, with the remaining 10% claimed in the subsequent year.
Conditions for Claiming Depreciation
- Depreciation is allowed only on capital assets used for business or professional purposes.
- The asset must be owned, wholly or partially, by the taxpayer claiming depreciation.
- The asset must be put to use during the financial year for which depreciation is being claimed.
- Depreciation is not available on land or assets that are held for personal use.