Furniture Depreciation Rate: How To Calculate, Depreciation Rates & Formula

In the Income Tax Act, the depreciation rate of furniture, plant and machinery has been mentioned for taxation and accounting purposes. The primary objective of this concept is to allow companies to claim deductions against the depreciation in their profit and loss statements. For calculating the depreciation, either the Straight Line method (SLM) or Written Down Value (WDV) is used. 

However, in most cases, the WDV method is broadly utilised for calculating depreciation. If you are wondering about the depreciation rate of furniture, scroll down. 

Furniture Depreciation Rate

Depreciation in accounting terms is defined as the reduction of an asset’s value due to wear and tear, obsolescence or regular usage. Furniture is a critical aspect of an office’s interior design. Businesses generally use it for normal daily life.

Accountants consider furniture and fixtures as tangible assets under separate items on budgetary documents and financial statements. However, like any other asset, with the passage of time, furniture also loses its value due to regular usage. As per the Income Tax Act, this loss in value can be availed as a deduction in the company’s profit and loss statement. 

Different furniture bought by an organisation has different tenures of useful life; thus, companies can avail deductions against furniture depreciation for more than one accounting period. 

Depreciation on Furniture As Per Income Tax Act

Since Income Tax Act allows a deduction on depreciation of an asset utilised in a business in the profit and loss statement, it is essential to calculate the depreciation as per the prescribed regulations. Under the Income Tax Act of 1961, the term furniture also includes fittings. Wiring, light fixtures, fans, and sockets are some of the common examples of electrical fittings. 

From the financial year 2017-2018 onwards, the depreciation rate of furniture has changed. Previously, this depreciation rate of furniture and fixtures was 15%. Whereas today, the depreciation rate of furniture and fixtures is 10%. As per Section 32(1), this depreciation rate is estimated on the basis of the Written Down Value (WDV) method of a block of assets. This block of assets is generally a group of assets that falls under the category of a class of assets consisting of tangible assets. 

This depreciation rate differs based on the type of asset, calculation method, and useful life. So, if you are confused about these factors and want to find the exact depreciation rate, there is a suitable way. Here is a step-by-step guide below:

1. Visit the official website of Income Tax India - Tax Charts and Tables. 
2. On the webpage, locate a search bar option and type “depreciation rates”. 
3. Hit the “Search” tab to view a list of depreciation rates applicable to different assets, including furniture, plant and machinery, building, and ships.

Furniture Depreciation Rate As Per Companies Act

As per the Companies Act 2013, deduction against depreciation is applicable to assets purchased after 1 April 2014. It only specifies the various assets' useful life and does not specify any specific depreciation rate. In accordance with part "C" of Schedule II of the Companies Act 2013, the following assumptions are considered for the estimation of rates of depreciation of furniture. This includes:

• The asset’s residual value is calculated by taking 5% of its initial cost.
• The asset's useful life is calculated as per Part C of Schedule II.

Henceforth, the depreciation rate of fittings and furniture is as follows:

Both of these methods embrace various approaches in order to determine the depreciation rate. For instance, in the SLM method, the depreciation rate of an asset is calculated by dividing the difference between its expected useful value and the asset’s cost by the number of years it is expected to be used. It is one of the simple methods of calculation where an equal amount is chargeable every year. 

On the contrary, the WDV method is the most commonly used and is chargeable on the asset's reduced value. In this depreciation, the amount is generally higher in the initial stage and gradually reduces.

Furniture Depreciation Rate Calculator

For estimating the depreciation rate of furniture, you can use the following formula:

In case of the WDV method, the formula is:

Rate of Depreciation (R) = 1 – [s/c]1/n

Here, ‘s’ signifies the scrap value at the end of the useful life

‘n’ stands for the useful life of the asset

‘c’ stands for written down value at present.

On the other hand, the formula for the SLM method is as follows:

Depreciation = Original Cost – Residual Value or Salvage cost / Useful Life.

Calculating this rate manually often leaves room for errors. However, to maximise convenience, you can use an online depreciation rate calculator. This tool helps in determining the depreciation via both of these methods. 

All you need to do is input information like cost of assets, salvage or residual value, method of depreciation and life of an asset. Upon entering these figures, the calculation will be provided easily. 

Final Words

The provisions mentioned in Section 32 of the Income Tax Act and Schedule II of the Companies Act 2013 significantly affect all Indian businesses. Henceforth, it is imperative to know about these prevailing rules and regulations as they can affect the organisation's profit and loss statement and budgetary documents. Also, it is equally important to charge depreciation in tax statements according to the Income Tax Act and Companies Act.

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