WDV Adjustment 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.
Sub-clause 18(ca) reports a WDV adjustment made on entering a concessional tax regime: under section 115BAA for A.Y. 2020-21, under sections 115BAC and 115BAD for A.Y. 2021-22, and under the second proviso to section 115BAC(3) for A.Y. 2024-25.
From the ICAI Guidance Note on Tax Audit (Revised 2026), the concluding edition under the Income-tax Act, 1961. Each WDV adjustment below is tied to a specific assessment year under that Act; under the Income-tax Act, 2025 the regime and depreciation provisions must be checked afresh, and the report becomes Form No. 26 under rule 47 of the Income-tax Rules, 2026.
Why the WDV adjustment exists
Every concessional regime denies additional depreciation under section 32(1)(iia). Where such depreciation, or an allowance for unabsorbed depreciation deemed so under section 72A, had not been given full effect before the assessee entered the regime, it would simply be lost. The provisos to section 115BAA(3), 115BAC(3) and 115BAD(3), read with Rule 5, prevent that by increasing the opening written down value of the block by the unabsorbed amount. Sub-clause 18(ca) reports that increase.
The three forms of WDV adjustment
| Item | Provision | Assessee | WDV as on | Applicable for |
|---|---|---|---|---|
| (i) | Proviso to section 115BAA(3) read with Rule 5 | Domestic companies opting for section 115BAA | 1 April 2019 | A.Y. 2020-21 only |
| (ii) | First proviso to section 115BAC(3) / proviso to section 115BAD(3) read with Rule 5 | Individuals and HUFs opting for section 115BAC(1); co-operative societies opting for section 115BAD | 1 April 2020 | A.Y. 2021-22 only |
| (iii) | Second proviso to section 115BAC(3) read with Rule 5 | Individual, HUF, AOP other than a co-operative society, BOI, or artificial juridical person under section 2(31)(vii), other than one who exercised the option under section 115BAC(6), paying tax under section 115BAC(1A) | 1 April 2023 | A.Y. 2024-25 only |
The Guidance Note repeats the point for all three: the adjustment "was to be made only for" that assessment year, and the assessee "is not required to make any adjustment in the subsequent year". So for a current-year audit all three items of sub-clause 18(ca) will normally be nil. They remain in the form because a report for one of those years — or a revised report for it, saved by section 536 of the Income-tax Act, 2025 — may still be signed.
Item (i) — section 115BAA, A.Y. 2020-21
Paragraph 30.10: a domestic company can opt for section 115BAA from A.Y. 2020-21, giving a concessional rate of 22% plus surcharge at 10% and cess at 4% on total income computed without certain exemptions and deductions. The option is exercised under section 115BAA(5) on or before the section 139(1) due date, and once exercised applies to all subsequent assessment years. MAT does not apply to a company opting for the regime, and MAT credit cannot be carried forward.
Under section 115BAA(3), the loss and depreciation referred to in clauses (ii) and (iii) of sub-section (2) are deemed to have been given full effect to, with no further deduction in any subsequent year. The proviso then provides that where a depreciation allowance in respect of a block has not been given full effect prior to A.Y. 2020-21, a corresponding adjustment is made to the WDV as on 1 April 2019.
The second proviso to Rule 5, inserted by the Income-tax (Twenty-second Amendment) Rules, 2020 with effect from 1 October 2020, sets three conditions:
- the option under section 115BAA(5) is exercised for the previous year relevant to the assessment year beginning 1 April 2020;
- there is a depreciation allowance in respect of a block from an earlier assessment year, or an allowance of unabsorbed depreciation deemed so under section 72A, attributable to section 32(1)(iia); and
- that amount is not allowed to be set off under clause (ii) or (iii) of section 115BAA(2).
Where all three are met, the WDV as on 1 April 2019 shall be increased by that amount.
Item (ii) — sections 115BAC and 115BAD, A.Y. 2021-22
Paragraph 30.11: section 115BAC(1) gave individuals and HUFs a concessional regime from A.Y. 2021-22 to A.Y. 2023-24, the option being exercised under section 115BAC(5) on or before the section 139(1) due date; for an assessee with business or professional income the option once exercised applied to subsequent years. Section 115BAD gives co-operative societies a concessional regime from A.Y. 2021-22, exercised under section 115BAD(5), and likewise applies to subsequent years.
The third proviso to Rule 5, also inserted with effect from 1 October 2020, applies where the option is exercised for the year relevant to the assessment year beginning 1 April 2021, there is a depreciation allowance attributable to section 32(1)(iia), and it is not allowed to be set off under section 115BAC(2)(ii)(a) or section 115BAD(2)(ii). The WDV as on 1 April 2020 is then increased by it.
Item (iii) — section 115BAC(1A), A.Y. 2024-25
Paragraph 30.12: section 115BAC(1A) is the default regime for individuals, HUFs, AOPs other than co-operative societies, BOIs and artificial juridical persons under section 2(31)(vii) — other than a person who exercised the option under section 115BAC(6) — and is effective from A.Y. 2024-25.
The second proviso to section 115BAC(3) applies where:
- (a) the assessee has not exercised the option under section 115BAC(5) for any previous year relevant to an assessment year beginning on or before 1 April 2023;
- (b) income-tax is computed under sub-section (1A); and
- (c) there is a depreciation allowance in respect of a block not given full effect prior to the assessment year beginning 1 April 2024.
The fourth proviso to Rule 5, inserted by the Income-tax (Tenth Amendment) Rules, 2023 dated 21 June 2023, then increases the WDV as on 1 April 2023 by the depreciation attributable to section 32(1)(iia) which is not allowed to be set off under section 115BAC(2)(ii)(a), on the same two conditions.
How this ties to the rest of the report
Paragraph 30.13: where the answer at clause 8a about exercising a regime option is yes, the auditor has to check whether any WDV adjustment is required in the opening balance and then report that WDV adjustment at clause 18(ca). He may also verify that the assessee filed the relevant form — such as Form 10-IC or Form 10-IEA — within the due date while exercising the option. Sub-clause (cc) then carries the adjusted written down value: paragraph 30.19 states that for working out depreciation, the WDV under sub-clause (c) as reduced by the amounts reported in sub-clauses (ca) and (cb) should be considered, and that figure is reported at (cc).
Worked example
| Facts | Reporting |
|---|---|
| Domestic company opted for section 115BAA in A.Y. 2020-21; Rs 84,00,000 of additional depreciation unabsorbed | WDV as on 1 April 2019 increased by Rs 84,00,000; reported at 18(ca)(i) in the A.Y. 2020-21 report only |
| The same company's A.Y. 2026-27 audit | 18(ca) nil — the adjustment is not repeated |
| Individual with business income taxed under the default section 115BAC(1A) from A.Y. 2024-25, never having opted earlier | WDV as on 1 April 2023 increased; reported at 18(ca)(iii) in the A.Y. 2024-25 report only |
| Goodwill of Rs 12,00,000 inside the intangible block | Reported at 18(cb); deducted in arriving at 18(cc) |
Audit checklist
- Read clause 8a first — no regime option, no WDV adjustment.
- Confirm the WDV adjustment has not already been made in an earlier year's return.
- Confirm the assessment year matches the item: 2020-21 for (i), 2021-22 for (ii), 2024-25 for (iii).
- Verify the relevant option form was filed in time.
- Isolate the depreciation attributable to section 32(1)(iia) — only that amount is adjusted.
- Confirm it was not allowed to be set off under the regime's own provisions.
- Apply the correct Rule 5 proviso and the correct 1 April date.
- Deduct (ca) and (cb) from (c) to arrive at (cc), and compute depreciation on (cc).
Common mistakes
- Repeating the WDV adjustment in a later year.
- Adjusting for all unabsorbed depreciation rather than only the section 32(1)(iia) portion.
- Using the wrong 1 April date for the block.
- Computing depreciation on (c) instead of on the adjusted figure at (cc).
- Reporting at 18(ca) without a corresponding "yes" at clause 8a.