Key Highlights
- Depreciation under Section 35, ITA 2025 — WDV method for most assets
- Assets grouped in blocks — depreciation on entire block, not individual assets
- Key rates: Buildings 10%; Plant and machinery 15%; Computers 40%; Intangibles 25%
- Additional depreciation: 20% on new P&M (manufacturing/power) — Section 36
- Actual Cost concept: includes purchase price, installation, duties, freight
- Part-year rule: 50% depreciation if asset used for less than 180 days in the year
- No depreciation on land — only on buildings
Legal Reference
Section 35 (depreciation), Section 36 (additional depreciation), Schedule XIV (depreciation rates), Income Tax Act, 2025 | Corresponds to Section 32, 32AC of ITA 1961
1. Block of Assets
Depreciation is computed on a "block" basis — all assets of the same class and same depreciation rate are grouped together. When a new asset is purchased, its cost is added to the block. When an asset is sold, its sale price is deducted from the block. Depreciation is applied to the WDV of the entire block at year end.
2. Depreciation Rates Under Schedule XIV
| Asset Category | Rate |
|---|
| Buildings (residential used for business) | 5% |
| Buildings (other commercial buildings) | 10% |
| Furniture and fittings | 10% |
| Plant and machinery (general) | 15% |
| Motor vehicles (personal use / business) | 15% |
| Computers, software, IT equipment | 40% |
| Intangible assets (patents, copyrights, trademarks, knowhow, licences) | 25% |
| Goodwill | 0% (no depreciation from AY 2022-23 onwards) |
3. Additional Depreciation: Section 36
Manufacturers and electricity generating companies get an additional 20% depreciation (over and above the normal depreciation) on new plant and machinery in the year of first use:
- Available only for manufacturing and power generation sectors
- New plant/machinery not previously used in India
- Not applicable to office equipment, vehicles, ships, aircraft, or assets used outside India
- If used for less than 180 days in first year: additional depreciation restricted to 10% (half of 20%) — carry forward remaining 10% to next year
4. Computation Example
Illustrative only. A manufacturing company has an existing P&M block of Rs 50 lakh WDV at 1 April 2026. It purchases new machinery for Rs 20 lakh on 10 June 2026 (used 300 days in Tax Year 2026-27).
- Opening WDV: Rs 50 lakh
- Add: New purchase: Rs 20 lakh
- WDV before depreciation: Rs 70 lakh
- Normal depreciation at 15%: Rs 10.5 lakh
- Additional depreciation at 20% on new Rs 20 lakh (used >180 days): Rs 4 lakh
- Total depreciation: Rs 14.5 lakh
- Closing WDV: Rs 55.5 lakh
5. Short Life Assets: 50% Rule
If an asset is purchased and put to use for less than 180 days in the Tax Year, only 50% of the normal depreciation rate applies for that year. The full rate applies in subsequent years. Additional depreciation is also restricted to 10% (half of 20%) for short-year assets — carry forward the remaining 10% to the next year.
6. Why TaxClue
Depreciation computation — block management, sale of assets, additional depreciation claims — requires careful tracking. TaxClue prepares depreciation schedules, identifies additional depreciation claims, and files ITR/audit reports accurately. Contact us for business tax and depreciation advisory under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is the depreciation method under ITA 2025?
The Income Tax Act, 2025 uses the Written Down Value (WDV) method for computing depreciation — where depreciation is applied to the reduced (written down) value of the block of assets each year. This means the deduction decreases every year as the WDV reduces. Straight Line Method (SLM) is not permitted for income tax depreciation. Depreciation rates are prescribed in Schedule XIV of ITA 2025 for each class of asset.
What is the depreciation rate for computers?
Computers, computer software, and IT equipment are depreciated at 40% per year under Schedule XIV of the Income Tax Act, 2025. This high rate reflects the rapid obsolescence of technology. The 40% rate is applied on the WDV (Written Down Value) of the computer block at the end of the Tax Year. If the computer is used for less than 180 days in the year of purchase, only 50% of 40% (i.e., 20%) is allowed in that year.
What is additional depreciation?
Additional depreciation under Section 36 of ITA 2025 is an extra 20% depreciation (over and above normal rates) available to manufacturers and electricity generators on new plant and machinery in the year of first installation. It applies only to manufacturing and power generation companies and only on new P&M not previously used in India. Office equipment, vehicles, ships, aircraft, and second-hand machinery are excluded.
Can goodwill be depreciated?
No. Goodwill cannot be depreciated for income tax purposes from Assessment Year 2022-23 onwards. This change was introduced by Finance Act 2021 and is continued in ITA 2025. Self-generated goodwill was never eligible for depreciation. Even purchased goodwill (arising from business acquisition) no longer qualifies for the 25% intangible asset depreciation. This prevents tax benefits from inflated goodwill in business acquisitions.
What happens to depreciation when an asset is sold?
When a depreciable asset is sold, its sale price is deducted from the block WDV. If the remaining WDV of the block becomes negative (sale price exceeds WDV), the negative amount is taxed as Short-Term Capital Gain. If the entire block is eliminated (all assets sold), the difference between total sale proceeds and WDV is STCG (if positive) or terminal depreciation (if negative, representing unrecovered cost — deductible as terminal depreciation).
