Depreciation Under Income Tax 2025-26 — Section 32 Rates & Rules

Updated: 3 June 2026 | Income-tax Act 2025 | WDV Method | Block of Assets | Section 32

Section 32 of the Income-tax Act allows depreciation on business assets using the Written Down Value (WDV) method for most assets (SLM only for power generation). Assets are grouped into blocks with a single depreciation rate per block. Key rates: Computers — 40%, Plant & Machinery — 15%, Buildings — 10%/5%, Furniture — 10%. Additional depreciation of 20% is available for new manufacturing assets (10% if used under 180 days).

₹1.2L saved

₹10L computer → ₹4L depreciation in Year 1 → ₹1.2L tax saved at 30% rate.
Depreciation is a non-cash deduction — no actual outflow, but reduces taxable income. Higher rates = faster tax benefit = better cash flow for the business.

Depreciation Rates Under Section 32 — Asset-Wise Table

Asset Category	WDV Rate	Remarks
Residential buildings	5%	Used as residential accommodation
Commercial / factory buildings	10%	Non-residential buildings used for business
Temporary wooden/bamboo structures	100%	Fully written off in year of purchase
Plant & Machinery (general)	15%	Most general plant and machinery
Computers & computer software	40%	Including laptops, tablets used for business
Motor cars (not public transport)	15%	Cars used for business purposes
Motor buses/lorries/taxis	30%	Used in the business of hire/transport
Two-wheelers	15%	Motorcycles, scooters used for business
Furniture & fittings	10%	Office furniture, fixtures
Ships	20%	Ocean-going and coastal vessels
Aircrafts	40%	Aeroplanes, helicopters
Intangible assets (patents, copyrights, know-how, trademarks)	25%	Acquired intangibles only
Pollution control equipment	100%	Fully written off in year 1
Energy-saving devices / renewable energy equipment	40%–100%	Depends on specific equipment type

Additional Depreciation — Section 32(1)(iia)

Condition	Additional Depreciation Rate
New P&M used for manufacturing/production — used for more than 180 days in purchase year	20% (in addition to normal depreciation)
New P&M used for manufacturing/production — used for 180 days or less in purchase year	10% (remaining 10% in next financial year)
Second-hand machinery	Not eligible
Office equipment, furniture, buildings, vehicles	Not eligible
Service sector businesses (non-manufacturing)	Not eligible (unless specifically notified)

Block of Assets — How It Works

All assets of the same category (same depreciation rate) form one "block." The WDV of the block at the start of the year is the opening balance. Add: cost of new assets purchased in the year. Deduct: sale proceeds of assets sold during the year. The resulting figure is the closing WDV — depreciation is calculated on this net amount at the applicable rate.

Step	Amount (Example)
Opening WDV of Plant & Machinery block (15%)	₹20,00,000
Add: New machinery purchased	₹5,00,000
Less: Machinery sold (sale proceeds)	₹3,00,000
Net WDV for depreciation	₹22,00,000
Depreciation @ 15%	₹3,30,000
Closing WDV (carried to next year)	₹18,70,000

Depreciation Tax Saving — Calculation

Asset	Cost	Depreciation Rate	Year 1 Depreciation	Tax Saved @ 30%	Tax Saved @ 25%
Computer	₹10,00,000	40%	₹4,00,000	₹1,20,000	₹1,00,000
Plant & Machinery	₹50,00,000	15%	₹7,50,000	₹2,25,000	₹1,87,500
P&M + Additional Depreciation (35%)	₹50,00,000	35%	₹17,50,000	₹5,25,000	₹4,37,500
Commercial building	₹1,00,00,000	10%	₹10,00,000	₹3,00,000	₹2,50,000

Frequently Asked Questions

What is the depreciation rate for computers under income tax?

Computers and computer software have a depreciation rate of 40% under the Income-tax Act (Written Down Value method). This is one of the highest depreciation rates, reflecting rapid technological obsolescence. For a computer costing ₹1,00,000: Year 1 WDV depreciation = ₹40,000 (or ₹20,000 if used for less than 180 days in the year of purchase). Year 2 opening WDV = ₹60,000, depreciation = ₹24,000. This high rate is available for both regular computers and computer software, including tablets and laptops used for business.

What is additional depreciation under Section 32(1)(iia)?

Additional depreciation of 20% is available in addition to normal depreciation for new plant and machinery used in manufacturing or production (or power generation). Conditions: (1) must be new (not second-hand) plant or machinery; (2) used in manufacturing/production/power; (3) used for more than 180 days in the year of purchase: full 20% additional; used for 180 days or less: 10% additional (remaining 10% claimed in next year). Additional depreciation is NOT available for: buildings, furniture, office equipment, vehicles, or assets used in service businesses (unless specifically notified).

What is the block of assets concept in income tax depreciation?

Under Section 32, assets are not depreciated individually — they are grouped into "blocks" based on asset type and depreciation rate. All assets in the same block (e.g., all Plant & Machinery at 15%) form one block. When you add an asset, its cost is added to the block WDV. When you sell an asset, the sale consideration is reduced from the block WDV. Depreciation is calculated on the net WDV of the entire block. If the WDV of a block becomes zero or negative (sale proceeds > block WDV), a short-term capital gain arises (taxable) — not depreciation recapture as under GAAP.

How does depreciation reduce tax? Give an example.

Depreciation is a non-cash deduction that reduces your taxable business income, thereby reducing tax liability. Example: Company buys a computer for ₹10,00,000. Depreciation at 40% = ₹4,00,000. This ₹4,00,000 is deducted from business income — no actual cash outflow for this deduction. Tax saving at 25% corporate rate = ₹1,00,000. At 30% rate = ₹1,20,000. Over the life of the asset, you recover the entire cost through depreciation deductions. The higher the depreciation rate, the faster the tax benefit (important for cash-flow planning, especially in early profitable years).

Is depreciation available in the year of sale of an asset?

Under the block of assets system, depreciation is available for the entire year even if the asset is sold during the year — as long as the block WDV is positive at year end. There is no proportionate deduction for partial year (except for the 180-day rule on additional depreciation for new assets). However, if all assets in a block are sold and the block ceases to exist: (a) if sale proceeds < WDV of block: the difference is a Terminal Depreciation (deductible); (b) if sale proceeds > WDV of block: the difference is a Short-Term Capital Gain (taxable as STCG, not business income).

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