DEPRECIATION RATES FOR FY- 2025-26 UNDER THE INCOME TAX ACT, 1961

Depreciation is one of the most crucial concepts in taxation and financial reporting, as it directly impacts taxable income, reported profits, and asset valuation. Depreciation rules in India are outlined in the Income Tax Act, 1961, specifically Section 32, which permits taxpayers engaged in business or a profession to claim depreciation rates on both tangible and intangible assets. The deduction represents the decline in the value of an asset resulting from continuous use, normal wear and tear, or simply the passage of time. This ensures that the cost of an asset is spread across the years in which it contributes to generating revenue.

For tax purposes, depreciation is calculated on the Written Down Value (WDV) of a block of assets, following pre-specified rates such as 40% for computers, 15% for general plant and machinery, 10% for furniture, 5% for residential buildings, and 25% for intangible assets like patents or know-how. These rates form the backbone of India’s depreciation rates for FY 2025-26. In this article, we will discuss the depreciation schedule as per the Income Tax Act.

Platforms like TMwala simplify this process by helping users navigate tax rules, depreciation charts, and compliance requirements without confusion, making tax planning much easier for individuals and businesses.

WHAT IS DEPRECIATION?

Depreciation represents the gradual reduction in an asset’s value due to its usage or ageing. In the Income Tax system, depreciation is not optional; it is a mandatory deduction. Once an asset is used for business or professional purposes, the taxpayer must claim depreciation, whether or not it is shown in the books. This is because the Act assumes depreciation to be “allowed or deemed to be allowed” every year and accordingly reduces the WDV.

Two methods of claiming depreciation are available:

Written Down Value (WDV) Method

This is the standard method used by almost all businesses. Depreciation is charged on the diminishing value of a block of assets each year.

Straight Line Method (SLM)

SLM is not widely available under income tax law, but undertakings involved in power generation or generation and distribution of power may choose this method, provided they exercise the option within the prescribed time.

Additionally, certain newly acquired machinery used in manufacturing or production may qualify for additional depreciation in the year of acquisition, subject to conditions.

Many taxpayers are confused about when to use the Straight Line Method and when the Written Down Value method applies. To understand the technical and practical differences between the two methods, refer to our detailed guide on the Straight Line Method vs the WDV Method.

POPULAR DEPRECIATION RATES FY 2025-26

Common assets used in business carry the following rates:

ASSET	RATE
Building	10%
Furniture & Fittings	10%
Plant & Machinery	15%
Computers	40%
Books	40%
Intangible Assets	25%

These rates apply block-wise, not asset-wise, which simplifies computation for tax purposes.

DEPRECIATION BLOCK OF ASSETS APPROACH

One of the distinctive features of Indian income tax depreciation rates is the form of the block of assets system. Instead of calculating depreciation for each item, assets are grouped based on:

• Their nature (building, machinery, furniture, etc.)
• Their use
• Their applicable depreciation rate

Once an asset enters a block, it loses its separate identity. Additions and disposals affect the block as a whole. Depreciation is allowed only if the block continues to exist at the end of the year, meaning at least one asset remains in the block after considering sales.

Asset classification as per the Income Tax Act: the assets are classified in blocks, and blocks consist of:

• TANGIBLE ASSETS
  • Buildings
  • Furniture and fittings
  • Plant and machinery
  • Ships
• Intangible assets
  • Licenses
  • Franchises
  • Copyrights
  • Know-how
  • Trademarks
  • Other business rights

ELIGIBILITY CONDITIONS FOR CLAIMING DEPRECIATION

To validly claim depreciation, certain statutory conditions must be satisfied:

• Ownership Requirement

The asset must be owned wholly or partly by the taxpayer.

• Business or Professional Use

Only the portion used for business qualifies. When an asset is partly for personal and partly for business use, depreciation is restricted proportionately. Under Section 38, the Assessing Officer may determine the allowable percentage.

• Co-ownership

When multiple taxpayers jointly own an asset, each can claim depreciation based on their share in ownership.

• Non-Eligible Items
  • Land
  • Goodwill

These do not qualify for depreciation under the Act.

• Mandatory Allowance

Even if not claimed in the return or books, depreciation is considered allowed. This prevents manipulating WDV by skipping claims.

• Presumptive Taxation

Businesses under Sections 44AD, 44ADA, or 44AE automatically have depreciation factored into their presumptive income.

UNDERSTANDING WRITTEN DOWN VALUE (WDV)

Rate of depreciation formula: WDV.

• When the asset is newly purchased in the year

WDV = Actual Cost

• When the asset was purchased in earlier years

WDV = Actual Cost – Depreciation Actually Allowed

This means each year’s depreciation lowers the base on which next year’s depreciation is computed.

DEPRECIATION CALCULATION AND SPECIAL SCENARIOS

• General Rule

Depreciation is calculated using the WDV method based on the prescribed rates in Appendix I of the Income Tax Rules.

• Power Sector Entities

Companies generating or distributing power may opt for WDV or SLM. The choice must be made before the due date of filing the return.

• Amalgamation or Demerger

Depreciation for the year is computed as if the restructuring had not occurred. It is then divided between the parties depending on the number of days each used the assets.

• Finance Leases

Under AS-19, the lessee capitalizes the asset and is treated as the owner for depreciation purposes.

Depreciation calculator India to calculate the depreciation:-Depreciation on other assets

COMPREHENSIVE DEPRECIATION RATES

The Income Tax Rules contain an exhaustive list of depreciation categories across two major sectionsTangible and Intangible assets. These include:

• Buildings used for residential and non-residential purposes
• Temporary wooden structures, including furniture and fittings, with a depreciation rate
• Various classes of plant and machinery depreciation rates
• Motor vehicles
• Pollution-control equipment
• Renewable energy devices
• Semiconductor industry equipment
• Medical equipment
• Ships and vessels
• Commercial rights are classified as intangible assets

Different assets attract different rates depending on their nature and usage, ranging from 5% to 40% for tangible assets and 25% for intangible assets.

METHODS OF CALCULATING DEPRECIATION

Different laws and accounting frameworks require different methods:

• Companies Act, 1956
  • Straight Line Method
  • Written Down Value Method
• Companies Act, 2013
  • SLM
  • WDV
  • Unit of Production Method
• Income Tax Act, 1961
  • WDV (mandatory for all except power-generating units)
  • SLM (only for eligible power sector undertakings)

STRAIGHT LINE METHOD FORMULA

SLM Rate =[(Original Cost – Residual Value) ÷ Useful Life] × 100

Annual Depreciation =Original Cost × SLM Rate

DEFERRED TAX CONSIDERATIONS

Since depreciation under the Income Tax Act differs from book depreciation under accounting standards, the mismatch creates temporary differences, which give rise to Deferred Tax Assets (DTA) or Deferred Tax Liabilities (DTL).

CONCLUSION

Depreciation rate as per the Income Tax Act, 1961, is much more than a routine deduction; it is a structured mechanism to reflect the diminishing value of business assets and to align taxation with economic usage. Understanding depreciation rates, block concepts, special provisions for mergers, WDV rules, and deferred tax implications helps businesses stay compliant and optimize their tax liability. With frequent amendments and evolving asset categories, maintaining up-to-date knowledge ensures accurate tax computation and smooth financial reporting.

This is where TMWala becomes especially useful by simplifying depreciation computations and enabling error-free income tax filing, allowing users to stay compliant with the law while optimizing tax savings.

FAQs

1. What is depreciation?
   A tax deduction for the reduction in value of business assets over time.
2. Which section covers depreciation?
   Section 32 of the Income Tax Act.
3. What method is mainly used for depreciation?
   The WDV method.
4. Who can use the SLM method?
   Only power generation undertakings.
5. What are common depreciation rates?
   Computers 40%, Machinery 15%, Furniture 10%, Buildings 5–10%, Intangibles 25%.
6. What is a block of assets?
   A group of assets with the same nature and depreciation rate.
7. Is depreciation allowed if not claimed?
   Yes, it is deemed allowed.
8. Is land eligible for depreciation?
   No, land and goodwill are not depreciable.
9. How is WDV calculated?
   Actual cost minus depreciation already allowed.
10. How can TMwala help?
    TMwala helps calculate depreciation and file taxes accurately.