Rule 25 of Income explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 25 of the Income-tax Rules, 2026 prescribes how depreciation is computed under section 33 of the Income-tax Act, 2025. Rates come from Appendix I applied to the written down value of the block of assets, with a 40% ceiling for taxpayers in the concessional regimes and a separate straight-line option in Appendix II for power undertakings.
The structure of rule 25
Rule 25 succeeds rule 5 of the Income-tax Rules, 1962. It has ten sub-rules, and they do four distinct jobs: set the ordinary method, impose a ceiling for concessional-regime taxpayers, provide the power-sector alternative, and create a special 40% category for indigenous technology.
Sub-rule (1) — the ordinary rule
Subject to sub-rule (7), the allowance under section 33(3) in respect of depreciation of any block of assets specified in column (2) of the Table in Appendix I is calculated at the percentages specified in column (3) of that Table, on the written down value of the block, for assets used for the business or profession at any time during the tax year.
Three features are worth naming because they are the architecture of Indian depreciation and they survive intact:
- Block of assets. Depreciation attaches to the block, not to the individual asset.
- Written down value. The reducing balance method, not straight line.
- Used at any time during the tax year. Use for part of the year is use; the separate half-year restriction for assets put to use for less than 180 days operates through the Act.
Sub-rule (2) — the 40% ceiling for concessional regimes
This is the sub-rule that most often changes a computation. Where the taxpayer falls in column B of the Table in sub-rule (2) and satisfies the condition in column C, the depreciation allowance under section 33(3) shall not exceed 40% of the written down value of the block.
| Sl. No. | Person | Condition |
|---|---|---|
| 1 | Domestic company | Which has exercised the option under section 199(3), or section 200(5), or section 201(2) |
| 2 | Individual or HUF; association of persons or body of individuals, whether incorporated or not; artificial juridical person referred to in section 2(77)(g) | Whose income is chargeable to tax under section 202(1) |
| 3 | Co-operative society resident in India | Which has exercised the option under section 203(5) or section 204(2) |
Section 202(1) is the default regime for individuals, HUFs, AOPs, BOIs and artificial juridical persons. So for the great majority of non-corporate business taxpayers, the depreciation ceiling of 40% of written down value applies automatically — it is not something they have to opt into. Any Appendix I rate above 40% is therefore read down to 40% for them.
Sub-rules (3) to (6) — the power sector alternative
Sub-rule (3) provides that the allowance under section 33(2) for depreciation of assets acquired on or after 1 April 1977, specified in column (2) of the Table in Appendix II, is calculated at the percentage in column (3) on the actual cost — a straight-line computation, not written down value.
Sub-rule (4) caps the total: aggregate depreciation allowed under section 33(2) for an asset across different tax years shall not exceed the actual cost of that asset.
Sub-rule (5) gives the election. An undertaking specified in section 33(2) may opt to be allowed depreciation under sub-rule (1) read with Appendix I — that is, the written down value block method — instead of Appendix II, provided the option is exercised on or before the due date for furnishing the return of income under section 263(1)(c) for the tax year in which it begins to generate power.
Sub-rule (6) makes it permanent: the option, once exercised, is final and applies to all subsequent tax years.
The election under sub-rule (5) is available only in the tax year in which the undertaking begins to generate power, and only up to the section 263(1)(c) due date for that year. Miss the window and the undertaking is on Appendix II permanently; exercise it and the undertaking is on Appendix I permanently. This needs to be modelled before the first return is filed, not after.
Sub-rules (7) and (8) — indigenous technology at 40%
Sub-rule (7) creates a special category. Where new machinery or plant is installed during a tax year commencing on or after 1 April 1987 for the business of manufacture or production of an article or thing, and that article or thing:
- is manufactured or produced using technology (including any process) or other know-how developed in; or
- is an article or thing invented in,
a laboratory owned or financed by the Government, or owned by a public sector company, or owned by a University or an institution recognised by the Secretary, Department of Scientific and Industrial Research, then that plant or machinery is treated as part of a block qualifying for depreciation at 40% of written down value, if three conditions are fulfilled:
- the right to use the technology or know-how, or to manufacture or produce the article, has been acquired from the owner of the laboratory or a person deriving title from that owner;
- the return of income for the tax year in which the machinery or plant is acquired is accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research to the effect that the article or thing is manufactured or produced using such technology or know-how developed in, or invented in, such laboratory; and
- the machinery or plant is not used for the business of manufacture or production of any article or thing specified in the list in Schedule XIII to the Act.
Sub-rule (8) defines the terms used in sub-rule (7):
- "Laboratory financed by the Government" — a laboratory owned by any body, including a society registered under the Societies Registration Act, 1860, and financed wholly or mainly by the Government.
- "Public sector company" — any corporation established by or under a Central, State or Provincial Act, or a Government company as defined in section 2(45) of the Companies Act, 2013.
- "University" — a University established or incorporated by or under a Central, State or Provincial Act, including an institution declared to be a University under section 3 of the University Grants Commission Act, 1956.
Rule 5 and rule 25 compared
| Point | Rule 5 (1962) | Rule 25 (2026) |
|---|---|---|
| Parent section | Section 32, Income-tax Act, 1961 | Section 33, Income-tax Act, 2025 |
| Rate table | Appendix I | Appendix I |
| Power-sector straight line | Appendix IA | Appendix II |
| Concessional-regime cap | 40% of WDV, tied to sections 115BA / 115BAA / 115BAB / 115BAC / 115BAD | 40% of WDV, tied to sections 199(3), 200(5), 201(2), 202(1), 203(5), 204(2) |
| Election due date reference | Section 139(1) | Section 263(1)(c) |
| Excluded articles list | Eleventh Schedule | Schedule XIII |
| Unit of time | Previous year | Tax year |
Worked example
A resident individual runs a printing business taxed under section 202(1). The block of "plant and machinery" carries a written down value of Rs 40,00,000 at the start of tax year 2026-27, and the Appendix I rate for that block is above 40%.
Because entry 2 of the rule 25(2) Table applies — an individual whose income is chargeable under section 202(1) — the allowance is capped at 40% of Rs 40,00,000 = Rs 16,00,000, regardless of the higher Appendix I rate.
Had the same business been carried on by a domestic company that had not exercised any option under sections 199(3), 200(5) or 201(2), the cap in sub-rule (2) would not apply and the full Appendix I rate would be available.
Compliance checklist
- Identify the taxpayer's regime first — the rule 25(2) ceiling depends entirely on it.
- For individuals, HUFs, AOPs, BOIs and artificial juridical persons under section 202(1), apply the 40% ceiling by default.
- For a power undertaking in its first year of generation, decide the Appendix I versus Appendix II election before the section 263(1)(c) due date — it is irreversible.
- For a sub-rule (7) claim, obtain the DSIR Secretary's certificate and file it with the return for the year of acquisition.
- Check the article against Schedule XIII before claiming the sub-rule (7) rate.
- Confirm aggregate section 33(2) depreciation has not exceeded actual cost.
Common mistakes
- Applying the full Appendix I rate to an individual or HUF. Section 202(1) brings the 40% ceiling in automatically.
- Treating the power-sector election as annual. It is one-time and final.
- Claiming the sub-rule (7) rate without the DSIR certificate filed with the return. The certificate is a condition, not supporting evidence to be produced later.
- Citing the Eleventh Schedule. The exclusion list is now Schedule XIII to the 2025 Act.
- Referring to Appendix IA for power undertakings. It is Appendix II in the 2026 Rules.