Rate Chart of Depreciation of Fixed Assets - Educational Resource

Rate Chart of Depreciation of Fixed Assets

As per Income Tax Act, 1961 & Companies Act, 2013

Assessment Year 2025-26

⚠️ Educational Disclaimer: This resource is for educational purposes only and does not constitute legal advice. Please consult with a qualified Chartered Accountant or tax professional for specific cases.

📋 Overview of Depreciation

What is Depreciation?

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. It represents the reduction in value of a fixed asset due to wear and tear, obsolescence, or passage of time.

Two Main Regimes in India

1. Income Tax Act, 1961 (Section 32): Governs depreciation for tax purposes

2. Companies Act, 2013 (Schedule II): Governs depreciation for financial reporting

Methods of Depreciation

Written Down Value (WDV) Method: Depreciation is calculated on the reducing balance of the asset

Straight Line Method (SLM): Depreciation is calculated on the original cost uniformly over the useful life

💼 Depreciation Rates as per Income Tax Act, 1961

Legal Framework

Section 32 of the Income-tax Act, 1961, read with Rule 5 and the New Appendix I of the Income-tax Rules, 1962 (applicable from A.Y. 2018-19 onwards).

Method: Depreciation is on Written Down Value (WDV) basis, except for undertakings engaged in generation or generation & distribution of power (where SLM is allowed).

📊 Depreciation Rate Chart - Income Tax Act, 1961

S. No.	Class of Asset	Particulars / Description	Rate of Depreciation (WDV)
I. BUILDINGS
1	Residential Buildings	Residential buildings (except hotels & boarding houses)	5%
2	Hotels & Boarding Houses	Buildings used mainly for hotels & boarding houses	10%
3	Business Buildings	Buildings used for business purposes (general)	10%
4	Temporary Structures	Purely temporary erections such as wooden structures	40%
II. FURNITURE & FITTINGS
5	Furniture & Fittings	Including electrical fittings such as wiring, switches, sockets, fans, etc.	10%
III. MACHINERY & PLANT
6	General Machinery	General machinery and plant (not covered elsewhere)	15%
7	Motor Cars (Not on Hire)	Motor cars (other than those used in business of running them on hire)	15%
8	Motor Cars (On Hire)	Motor cars used in business of running them on hire	30%
9	Aeroplanes	Aeroplanes – aero-engines	40%
10	Ships	Ships	20%
11	Commercial Vehicles	Motor buses, lorries, taxis used in business of running them on hire	30%
12	Moulds	Moulds used in rubber & plastics goods factories	30%
13	Energy-Saving Devices	Solar power generators, windmills, etc.	40%
14	Pollution Control Equipment	Air pollution control equipment, water pollution control equipment	40%
15	Medical Equipment	Life-saving medical equipment (e.g., ECG, dialysis, X-ray machines)	40%
16	Computers & Software	Computers including computer software (Note 7 defines "computer software")	40%
17	Books (Annual)	Books – annual publications	100%
18	Books (Other)	Books – other than annual publications	60%
IV. INTANGIBLE ASSETS (Section 32(1)(ii))
19	Intangible Assets	Know-how, patents, copyrights, trademarks, licences, franchises, or any other business or commercial rights of similar nature	25%

📘 Important Notes from Appendix I

Computer Software Definition: Any computer programme recorded on any disc, tape, perforated media, or other information storage device (Note 7)
Electrical Fittings: Include wiring, switches, sockets, and fans (Note 5)
180-Day Rule: If an asset is put to use for less than 180 days in the previous year, only 50% of the normal rate applies for that year
Block of Assets: Individual asset tracking ends once grouped into its respective block
Additional Depreciation: Under section 32(1)(iia), additional 20% may be available for new plant & machinery in manufacturing or power generation (additional 20% for notified backward areas)
No Depreciation on Land: Land is not a depreciable asset
Power Generation: For power-generation undertakings, Straight-Line Method (SLM) option is available with different notified rates

🏢 Depreciation Rates as per Companies Act, 2013

Legal Framework

Schedule II of the Companies Act, 2013 provides useful life of assets for depreciation purposes.

Method: Either Straight Line Method (SLM) or Written Down Value (WDV) - must be applied consistently for each class of asset.

Key Difference: Unlike the Income Tax Act's fixed-rate system, Companies Act is based on useful life of assets.

📊 Depreciation Rate Chart - Companies Act, 2013 (Schedule II)

S. No.	Asset Category	Particulars / Description	Useful Life (Years)	Approx. SLM Rate	Approx. WDV Rate
I. BUILDINGS
1	Factory Buildings	Factory buildings	30	3.17%	9.5%
2	Other Buildings	Other buildings (excluding factory buildings)	60	1.58%	4.87%
3	Temporary Structures	Temporary erections such as wooden structures	3	31.67%	63.16%
II. FURNITURE & FITTINGS
4	Furniture & Fittings	Including electrical fittings (fans, wiring, switches, etc.)	10	9.5%	25.89%
III. PLANT & MACHINERY
5	General Plant & Machinery	General plant and machinery (not specified elsewhere)	15	6.33%	18.10%
6	Continuous Process Plant	Continuous process plant (where not otherwise specified)	8	11.88%	27.82%
7	Motor Vehicles (Not on Hire)	Motor vehicles (other than those used on hire)	8	11.88%	25.89%
8	Commercial Vehicles	Motor buses, lorries, taxis used in a business of running them on hire	6	15.83%	31.23%
9	Computers (Hardware)	Computers (desktops, laptops, servers, peripherals)	3	31.67%	63.16%
10	Computer Software	Computer software (acquired)	3	31.67%	63.16%
11	Electrical Installations	Electrical installations, cables, transformers, etc.	10	9.5%	25.89%
IV. OFFICE EQUIPMENT
12	Office Equipment	Fax, photocopiers, telephones, etc.	5	19%	39.3%
V. VEHICLES
13	Two-Wheelers	Motor cycles, scooters, mopeds	10	9.5%	25.89%
14	Motor Cars	Motor cars (not on hire)	8	11.88%	25.89%
15	Commercial Vehicles	Motor buses, lorries, taxis (on hire)	6	15.83%	31.23%
VI. INTANGIBLE ASSETS
16	Intangible Assets	Licences, trademarks, software, etc. – Amortised over estimated useful life	As per management estimate	–	–

⚙️ Key Principles - Companies Act, 2013 (Schedule II)

Depreciation Method: Either SLM or WDV - must be applied consistently for each class of asset. Change in method = change in accounting estimate (requires disclosure)
Residual Value: Normally not more than 5% of the original cost of the asset, unless justified and disclosed
Useful Life: As per Schedule II, unless the company can justify a different life supported by technical advice and Board resolution
Component Accounting: Significant parts of an asset with different useful lives must be depreciated separately
Intangible Assets: Amortisation over the useful life. If life cannot be estimated reliably → 10 years (default)
Transition: When Companies Act, 2013 became effective (1st April 2014), remaining life of existing assets had to be reassessed

💻 Depreciation on Computer and Computer Software

Overview

Depreciation on computers and computer software under the Income Tax Act, 1961 is governed by Section 32 read with Rule 5 and New Appendix I of the Income-tax Rules, 1962.

1. Block of Asset & Rate of Depreciation

(A) Computers (Hardware)

Asset Class: "Machinery and plant"
Block: Computers including computer software (a separate block under "Machinery and plant")
Normal Depreciation Rate (WDV method): 40% per annum
Note: Earlier this block enjoyed 60%, but after notification capping maximum rates to 40%, the effective rate is now 40% for most assessees from AY 2018-19 onwards

(B) Computer Software – What Exactly is Covered?

Definition from Note 7: "Computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device.

Covered Items:

Off-the-shelf / licensed software (ERP, accounting, OS, office suite, etc.)
Desktop / laptop / server hardware
Systems software / application software purchased (not self-generated)

All clubbed into one block: "Computers including computer software" @ 40%

2. Intangible Assets vs. "Computer Software"

Computer Software (40% Block)

Payment for acquiring and using a software program (standard or customised) for your own business operations

Examples: ERP systems, Accounting software, CRM, Operating systems

Intangible Assets (25% Block)

Payment for wider commercial rights under Section 32(1)(ii)

Examples: Perpetual marketing rights, distribution rights, right to exploit copyright, know-how, patents, franchises

3. Method and "Put to Use" Condition

Depreciation Method

Written Down Value (WDV) method is used, block-wise, under section 32(1) read with sections 2(11) & 43(6)

Exception: Only power-generation undertakings can use SLM

Put-to-Use Rule (Half-Year vs. Full Year)

If used ≤ 180 days: Only 50% of 40% = 20% depreciation is allowed on those additions
If used > 180 days: Full 40% depreciation on additions

Block Concept

Once an asset enters the block, individual items are not tracked for depreciation
Only track for WDV and "put to use" in the year of addition
Sale proceeds reduce from WDV
If block ceases to exist → balancing adjustment under Section 50 (short-term capital gain/loss)

4. Quick Summary for Practice (AY 2025-26)

Asset Type	Block Classification	Rate (WDV)	Notes
Computers (desktops, laptops, servers, etc.)	Computers including computer software	40%	Standard IT hardware
Licensed Software (ERP, accounting, CRM, OS, etc.)	Computers including computer software	40%	Business operation software
Commercial Rights in Software (copyright exploitation, franchise rights)	Intangible assets	25%	Classification may be litigated

📊 Comparative Analysis: Income Tax Act vs Companies Act

Asset Type	Income Tax Rate (WDV)	Useful Life (Companies Act)	Approx. WDV Rate (Companies Act)	Difference
Building (general)	10%	30 years	9.5%	+0.5%
Furniture	10%	10 years	25.9%	-15.9%
Plant & Machinery	15%	15 years	18.1%	-3.1%
Motor Car	15%	8 years	25.9%	-10.9%
Computers	40%	3 years	63.16%	-23.16%
Intangible Assets	25%	As estimated	Varies	–

🔑 Key Differences

Purpose: Income Tax Act → Tax computation | Companies Act → Financial reporting
Basis: Income Tax Act → Fixed rates | Companies Act → Useful life
Deferred Tax: Differences between IT and Companies Act depreciation create Deferred Tax Liability (DTL) or Asset (DTA) as per AS 22 / Ind AS 12
Flexibility: Companies Act allows companies to justify different useful life with technical advice and Board resolution
Component Accounting: Required under Companies Act, not under Income Tax Act

🔄 Depreciation Calculation Process Flowchart

START
Fixed Asset Acquired

↓

Step 1
Identify Asset Class
(Building, Machinery, Computer, etc.)

↓

Step 2
Determine Applicable Regime
Income Tax Act or Companies Act?

↓

Decision
For Income Tax Act

↓

Step 3
Assign to Block of Assets
(e.g., Computers @ 40%)

↓

Check
Used for > 180 days?

↓ YES

Full Rate
Apply 100% of rate

↓ NO

Half Rate
Apply 50% of rate

↓

Step 4
Calculate Depreciation
Rate × WDV

↓

Step 5
Update Written Down Value
WDV = Previous WDV - Depreciation

↓

END
Depreciation Claimed

Formula Reference

Depreciation (WDV Method) = Rate × Opening WDV

Closing WDV = Opening WDV + Additions - Depreciation - Sale Proceeds

For First Year with < 180 days use: Effective Rate = 50% of Normal Rate

🧠 Depreciation Mind Map

DEPRECIATION
OF
FIXED ASSETS

Legal Framework

Income Tax Act 1961
Section 32

Companies Act 2013
Schedule II

Rule 5 & Appendix I

Methods

WDV Method
(Reducing Balance)

SLM Method
(Straight Line)

Asset Classes

Buildings
5-10%

Furniture
10%

Machinery
15-30%

Computers
40%

Intangibles
25%

Special Rules

180-Day Rule
(50% Rate)

Block of Assets
Concept

Additional
Depreciation 20%

No Depreciation
on Land

Key Rates
(IT Act)

Residential: 5%

Business Bldg: 10%

Motor Car: 15%

Taxis/Lorries: 30%

Computers: 40%

Companies Act
Features

Useful Life
Basis

5% Residual
Value

Component
Accounting

DTL/DTA
Impact

💡 Practical Tips for Professionals

✓ Verify Conditions

Always verify actual use and ownership conditions under section 32 before claiming depreciation

📊 Maintain Registers

Maintain block-wise asset registers to simplify WDV computation and audit trail

🔄 Reconcile WDV

Reconcile opening WDV with the previous year's closing figure to ensure accuracy

💰 Track Disposals

Keep detailed note of any disposal to adjust sale proceeds under section 50 (capital gains on block)

📅 180-Day Rule

Carefully track the "put to use" date for new assets to correctly apply the 180-day rule

📝 Document Classification

For computer software vs intangible assets, maintain proper documentation for classification rationale

🔍 Additional Depreciation

Check eligibility for additional depreciation u/s 32(1)(iia) for manufacturing units

⚖️ Deferred Tax

Calculate and disclose deferred tax arising from differences between IT Act and Companies Act depreciation

📋 Illustrative Classification Summary

Category	Examples	Depreciation Rate (IT Act)
Building (factory, office)	Factory shed, office building	10%
Furniture & Fittings	Tables, chairs, cabinets, fans	10%
Plant & Machinery (general)	Tools, machinery, equipment	15%
Motor Vehicle (not on hire)	Company car	15%
Motor Vehicle (on hire)	Taxi, transport lorry	30%
Computer hardware/software	Laptop, desktop, ERP software	40%
Intangible asset	Trademark, franchise, copyright	25%