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Income Tax · BusinessIncome-tax depreciation: WDV rates, half-year rule and examples
Depreciation under the Income-tax Act is computed on blocks of assets using the written-down value method – with its own rates, a half-rate rule for assets used under 180 days and special rules on sale. Here is how it works, with a worked example.
Depreciation for income tax is different from depreciation in your books under the Companies Act or accounting standards. Section 32 of the 1961 Act (and the corresponding provision of the Income-tax Act, 2025 with its schedule of rates) uses the block of assets concept and mostly the written-down value (WDV) method.
Block of assets
A block is a group of assets in the same class with the same rate of depreciation. Depreciation is computed on the block, not asset by asset.
Main WDV rates
| Asset | Rate |
|---|---|
| Residential buildings | 5% |
| Buildings – office, factory, shop | 10% |
| Furniture and fittings (including electrical fittings) | 10% |
| Plant and machinery (general) | 15% |
| Motor cars (other than used in hire business) | 15% |
| Motor buses, lorries, taxis used in hire business | 30% |
| Computers and software | 40% |
| Books (professionals – annual publications) | 40% |
| Intangible assets (know-how, patents, trademarks, licences) | 25% |
Goodwill is not depreciable from FY 2020-21. Land is never depreciable.
Computing WDV of a block
Opening WDV + Actual cost of assets acquired in the year – Sale proceeds of assets sold in the year (not exceeding the block) = WDV for depreciation
The 180-day rule
If an asset is acquired and put to use for less than 180 days in the year, depreciation on it is at half the rate for that year. The remaining half is not carried forward – the next year the full rate applies on the reduced WDV.
Additional depreciation
A manufacturing or power-generating business acquiring new plant and machinery (not office appliances, vehicles or second-hand assets) gets additional depreciation of 20% of cost (35% in notified backward areas of certain States) in the first year (half if used under 180 days, with the balance in the next year). Not available to companies opting for 22% tax under Section 115BAA.
Worked example
Example: Vardhan Industries, a small manufacturer in Narela (FY 2025-26):
| Block: Plant & Machinery @15% | Amount |
|---|---|
| Opening WDV (1 April 2025) | ₹20,00,000 |
| Add: new machine bought 10 June 2025 (used from same date) | ₹8,00,000 |
| Add: new machine bought 5 December 2025 (used from same date) | ₹4,00,000 |
| Less: old machine sold | ₹1,50,000 |
| WDV before depreciation | ₹30,50,000 |
| Depreciation | Amount |
|---|---|
| On ₹26,50,000 (opening + June asset – sale) @15% | ₹3,97,500 |
| On ₹4,00,000 (December asset, < 180 days) @7.5% | ₹30,000 |
| Additional depreciation – June machine 20% × ₹8,00,000 | ₹1,60,000 |
| Additional depreciation – December machine 10% × ₹4,00,000 (balance 10% next year) | ₹40,000 |
| Total depreciation | ₹6,27,500 |
Closing WDV = ₹30,50,000 – ₹4,27,500 (normal depreciation) – ₹2,00,000 (additional) = ₹24,22,500.
Sale of assets
- If sale proceeds exceed the block's WDV (opening + additions), the excess is short-term capital gain (Section 50), even if the asset was held for years.
- If all assets of a block are sold and proceeds are less than WDV, the difference is a short-term capital loss.
Cash payments and depreciation
If any part of the cost of an asset is paid in cash above ₹10,000 per day to a person, that part is excluded from actual cost (Section 43(1)) – no depreciation on it.
Unabsorbed depreciation
Depreciation that cannot be absorbed because of insufficient income is carried forward indefinitely and can be set off against any income (other than salary) in later years – see business loss carry-forward.
Presumptive cases
Under 44AD/44ADA/44AE, depreciation is deemed allowed; WDV must still be reduced each year notionally.
Under the 2025 Act
The rates and the block concept are carried into the 2025 Act with the rates in a schedule. Tax audit for Tax Year 2026-27 will report depreciation under the new provisions.
Common mistakes
- Using Companies Act rates or straight-line method for tax.
- Claiming full rate on assets used for less than 180 days.
- Depreciating land or goodwill.
- Claiming additional depreciation on office equipment or vehicles.
- Ignoring Section 50 when sale proceeds exceed WDV.
Key takeaway
Tax depreciation is block-wise WDV with fixed rates, a half-rate for assets used under 180 days and special capital gains rules on sale. Maintain a separate tax fixed-asset register. Our accounting and tax audit teams prepare depreciation schedules for Form 3CD.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 33 (with Sch.) (corresponds to 32): Depreciation
- Income-tax Act, 1961 – Section 32 (corresponds to 33 (with Sch.)): Depreciation
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
What is the depreciation rate on computers?
40% on the written-down value, including computer software.
What is the depreciation rate on cars?
15% for motor cars used in business; 30% for motor buses, lorries and taxis used in the business of running them on hire.
When is only half depreciation allowed?
If an asset is acquired and put to use for less than 180 days in the year of acquisition, depreciation is allowed at half the normal rate in that year.
Is depreciation compulsory?
Yes. Depreciation is deemed to be allowed whether or not claimed, so the WDV reduces even if you do not claim it.
Is depreciation allowed on a leased car?
Depreciation is allowed to the owner. Under a finance lease, the lessee may be treated as owner in some cases; under an operating lease, the lessee claims lease rent.
What rate applies to solar panels?
Certain renewable energy devices have specified rates in the depreciation schedule (40% for many items). Check the specific item.
Can depreciation be claimed if the asset was not used?
No. The asset must be owned and used for business during the year (with the 180-day half rate).
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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