Depreciation Rates for FY 2025-26 Under Income Tax Act

Depreciation under Section 32 of the Income Tax Act, 1961 is a tax deduction permitted for the decline in value of tangible and intangible assets used for business or profession. It is computed on the Written Down Value (WDV) of each block of assets and follows prescribed rates such as 40% for computers, 15% for plant and machinery, 10% for furniture, 5% for residential buildings, and 25% for intangible assets

What is Depreciation?

Depreciation refers to the reduction in the value of a tangible asset over time due to wear and tear or passage of time. Under the Income Tax Act, businesses can claim depreciation as a mandatory deduction in their profit and loss account when they use depreciable assets for business or professional purposes.

Depreciation can be claimed using two methods:

• Written Down Value (WDV) Method – the most commonly used method across industries.
• Straight-Line Method (SLM) – available as an option for undertakings engaged in power generation or generation and distribution.

In addition, the Act also allows additional depreciation in the year of purchase for certain new assets, particularly for manufacturing and production businesses, subject to specified conditions.

Block of Assets- Concept

Under the Income Tax Act, depreciation is calculated on a “block of assets” i.e., a group of assets within the same class and depreciation rate. These can be:

• Tangible assets: Buildings, machinery, plant, or furniture
• Intangible assets: Know-how, patents, copyrights, trademarks, licenses, franchises, etc.

Assets in a block must have similar use, nature, and depreciation rate. Individual assets lose their identity for tax purposes, and depreciation is applied collectively to the block.

Conditions for Claiming Depreciation

To claim depreciation under the Income Tax Act, the following conditions must be met:

• Ownership: The asset must be owned, wholly or partly, by the assessee.
• Business Use: The asset must be used for business or profession. If partly used for non-business purposes, depreciation is allowed proportionately. The Income Tax Officer may determine the allowable portion under Section 38.
• Co-ownership: In case of co-ownership, each owner can claim depreciation based on their share in the asset.
• Exclusions: Goodwill and cost of land are not eligible for depreciation.
• Mandatory Claim: From AY 2002-03, depreciation is allowed or deemed allowed—even if not claimed in the books. The WDV will be reduced by the eligible depreciation amount regardless.
• Presumptive Taxation: If you opt for the presumptive income scheme, depreciation is considered to be already factored into the presumptive income.
• Different from Companies Act: Depreciation under the Income Tax Act is governed by its own rates, irrespective of the Companies Act or what is charged in the books of accounts.

Written Down Value(WDV) of Assets - Meaning

As per Section 32(1) of the IT Act depreciation should be computed at the prescribed percentage on the WDV of the asset, which in turn is calculated with reference to the actual cost of the assets. In the context of computing depreciation, it is important to understand the meaning of the term ‘WDV’ & ‘Actual Cost’.

WDV under the Income Tax Act means:

• Where the asset is acquired in the previous year, the actual cost of the asset shall be treated as WDV.
• Where the asset is acquired in an earlier year, the WDV shall be equal to the actual cost incurred less depreciation actually allowed under the Act.

Amount of Depreciation Allowed

Depreciation under the Income Tax Act is primarily calculated using the Written Down Value (WDV) method, as specified in Appendix 1 of the Income Tax Rules.

• Power Generation Companies: Undertakings engaged in the generation or generation and distribution of power may opt for either the WDV method or the Straight-Line Method (SLM), if the choice is made before the due date of filing the income tax return.
• Amalgamation or Demerger: In such cases, the total depreciation is calculated as if the restructuring had not occurred and is apportioned between the companies based on the number of days the assets were used by each entity.
• Finance Lease (AS-19): When assets are acquired under a finance lease, the lessee must capitalize the asset. As per Accounting Standard 19, the lessee is treated as the deemed owner and is eligible to claim depreciation.

Depreciation Rates for FY 2025-26 for Most Commonly used Assets

Depreciation Rates as per the Income Tax Act (Comprehensive Chart)

The below depreciation rate chart is divided into two parts

• Part A Tangible Assets
• Part B Intangible Assets

For example, the depreciation will be computed as follows:

Methods of Calculating Depreciation

Methods of Depreciation and useful life of depreciable assets may vary from asset to asset. Based on asset type and industry, it can differ for accounting and taxation purposes also. Most commonly employed methods of depreciation are Straight Line Method and Written Down Value Method. 

Other than depreciation rates, the basic differences depreciation calculation as per the income tax Act and companies act is the method used for depreciation calculation.

Methods of depreciation as per Companies Act, 1956 (Based on Specified Rates):

• Straight Line Method
• Written Down Value Method

Methods of depreciation as per Companies Act, 2013 (Based on Useful Life of assets):

• Straight Line Method
• Written Down Value Method
• Unit of Production Method

Methods of depreciation as per Income Tax Act, 1961 (Based on Specified Rates):

• Written Down Value Method (Block wise)
• Straight Line Method for Power Generating Units

Formula for Calculating Depreciation by Straight-Line Method

a. Straight-Line Method Rate of Depreciation =

[ (Original Cost – Residual Value) / Useful Life ] x 100 

b. Depreciation =

Original Cost x Rate of Depreciation under SLM (as calculated in (a))

Analysis of AS-22/IND AS 12 with Reference to Depreciation

Depreciation methods differ for taxation purpose and accounting purpose. Hence, the amount of depreciation differs which gives rise to a timing difference. Such timing difference needs to be quantified in financial statements in the form of deferred tax liability / asset.

Under Accounting Standard-22, deferred Tax is income tax payable/recoverable in future periods due to taxable temporary differences.  

Temporary differences are the differences between the carrying amount of an asset or liability in the Balance sheet and its tax base. Tax Base is the amount attributed to the asset or liability for tax purpose.

Illustration:  
An asset with a cost Rs 150 has a carrying amount of Rs 100.  
Cumulative depreciation for tax purposes is Rs 90 and the tax rate is 25%.  
therefore, the tax base (opening balance as per IT Act) is –

(Cost of Rs 150 less cumulative tax depreciation of Rs 90), i.e. Rs 60

To recover the carrying amount of Rs 100, the entity must earn taxable income of Rs 100, but will only be able to deduct tax depreciation of Rs 60. Consequently, the entity will pay income taxes of Rs 10 (Rs 40 at 25%) when it recovers the carrying amount of the asset. The difference between the carrying amount of Rs 100 and the tax base of Rs 60 is a taxable temporary difference of Rs 40.  

Therefore, the entity recognizes a deferred tax liability of Rs 10 (Rs 40 at 25%) representing the income taxes that it will pay when it recovers the carrying amount of the asset.

Also Read: 
Car and Bike Depreciation Rate 
Land and Building Depreciation Rate 
Computer, Laptop & Printer Depreciation Rate 
Mobile Phone Depreciation Rate 
Furniture Depreciation Rate 
Plant and Machinery Depreciation Rate