Depreciation Under Income Tax — Section 32, WDV & Blocks

Common WDV rates are: computers and software 40%, general plant and machinery 15%, non-residential (factory/commercial) buildings 10%, residential buildings 5%, furniture and fittings 10%, motor cars for business 15%, buses/lorries/taxis on hire 30%, ships 20%, aircraft 40% and acquired intangibles 25%. Temporary wooden structures and certain notified equipment can be 100%. Always confirm the exact class against Appendix I on incometax.gov.in.

The Written Down Value (WDV) method on the block-of-assets system is the default for almost all businesses. The Straight Line Method (SLM) is available only to undertakings engaged in generation or generation and distribution of power, which may opt for SLM on individual assets. Companies computing book depreciation under the Companies Act use a separate schedule — that does not change the income-tax depreciation.

Yes. Depreciation under Section 32 is a business/profession deduction and is allowed under both the old and the new tax regime. What the new regime restricts for businesses is additional depreciation under Section 32(1)(iia) and certain other incentive deductions — normal depreciation on the WDV of blocks continues in both regimes.

Additional depreciation is an extra 20% on the cost of new plant and machinery, over and above normal depreciation, for businesses engaged in manufacturing or production (and power generation). Conditions: the plant/machinery must be new (not second-hand), used in manufacturing/production, and it applies once in the year of installation. If the asset is used for 180 days or less that year, only 10% is allowed in year 1 and the remaining 10% in the next year.

Additional depreciation is not available on buildings, furniture and fittings, office equipment, motor vehicles, second-hand machinery, ships or aircraft, or any plant and machinery installed in office premises, residential accommodation or guest houses. Service-sector (non-manufacturing) businesses generally do not qualify unless specifically notified. It targets new manufacturing plant and machinery only.

If an asset is acquired and put to use for less than 180 days during the financial year of purchase, only half the normal depreciation rate is allowed in that first year (for example 20% instead of 40% on a computer). The full rate applies from the next year. For additional depreciation, the balance half is expressly allowed in the immediately following year. To claim the full first-year depreciation, put the asset to use on or before 30 September.

Under Section 32, assets are grouped into "blocks" by asset type and rate — for example all plant and machinery at 15% form one block. New purchases add to the block WDV and sale proceeds reduce it; depreciation is charged on the net WDV of the whole block, not on individual assets. This avoids tracking each asset separately and means the year you sell an asset does not, by itself, trigger a gain unless the block runs down.

Under the block system, depreciation is charged on the closing WDV of the block, so the sale of one asset does not stop depreciation as long as the block still has value and other assets. If all assets in a block are sold and the block ceases to exist: where sale proceeds are less than the block WDV, the shortfall is a short-term capital loss (terminal); where they exceed the WDV, the excess is a short-term capital gain — not business income.

No. Since AY 2002-03 depreciation is mandatory — it is deemed to have been allowed whether or not you claim it, and the block WDV is reduced every year regardless. You cannot choose to forgo depreciation in a low-profit or loss year to keep a higher WDV for future years. Unabsorbed depreciation, however, can be carried forward indefinitely and set off against any head of income.

If an asset (such as a car) is used partly for business and partly for personal purposes, depreciation is allowed only to the extent of business use. The Assessing Officer restricts the deduction to a fair proportion. For a proprietor using a car 70% for business, roughly 70% of the computed depreciation is allowed; keep a usage log to support the proportion claimed.

Depreciation is a non-cash deduction that lowers taxable business income without any cash outflow. Example: a company buys a ₹10,00,000 computer; depreciation at 40% is ₹4,00,000, which is deducted from business profit. At a 30% tax rate that saves ₹1,20,000 (₹1,00,000 at 25%). Over the asset's life you recover its full cost through depreciation; the higher the rate, the faster the tax benefit and the better the cash flow in early years.

Not separately. Under Section 44AD (small business, 6%/8% of turnover) and 44ADA (professionals, 50% of gross receipts), depreciation is deemed already allowed within the presumptive profit. The WDV of your blocks is still reduced each year as if depreciation had been claimed, which matters if you later exit the presumptive scheme or sell the assets. Only taxpayers maintaining regular books claim depreciation as a separate line.

No. Following the amendment effective AY 2021-22, goodwill of a business or profession is not a depreciable asset and no depreciation is allowed on it, even if it was acquired for consideration. Any goodwill that was part of a block earlier had to be removed from the block WDV. Other acquired intangibles — patents, copyrights, trademarks, licences, know-how and franchises — continue to be depreciated at 25%.

Claiming depreciation itself does not trigger a tax audit. A tax audit under Section 44AB is required based on turnover/receipts thresholds or when you declare profits below the presumptive rate while your income exceeds the basic exemption. If you maintain regular books and claim actual depreciation, ensure the depreciation schedule is complete and the WDV carried forward is accurate. See our guide on the tax-audit thresholds for details.