What are the Depreciation Rates as Per the Income Tax Act?
Depreciation implies a decrease in the value of an intangible or tangible asset over time. While determining the financial statement of a business entity, calculating the depreciation of an asset utilised in a business is essential as the ITA mandates deduction of the same from the profit and loss statement.
This article summarises the depreciation rates of each type of asset and other vital aspects so that taxpayers can calculate depreciation without facing inconvenience.
What Are the Depreciation Rates As Per Income Tax Act?
Take a look at the depreciation rate chart as mentioned below:
Part A: Tangible Assets
| Class of Assets | Types of Assets | Depreciation Rates (Expressed as Percentage of WDV or Written Down Value) |
| Buildings | - | - |
| 1 | Residential buildings except for boarding houses and hotels | 5% |
| 2 | Buildings used other than residential purposes and are not mentioned in (1) and (3) | 10% |
| 3 | Buildings owned on or after 1st September 2002, to install plant and machinery for water supply and utilised for providing infrastructural facilities as specified under Section section 80-IA(4)(i) | 40% |
| 4 | Temporary buildings like wooden constructions | 40% |
| Fittings and Furniture | - | - |
| 1 | Fittings such as electrical fittings and other fittings and furniture | 10% |
| Plant and Machinery | - | - |
| 1 | Plant and machinery other than those mentioned in (8), (3), and (2) | 15% |
| 2(i) | Motor cars apart from the ones utilised for driving them on hire; acquired or put to use on or after 1st April 1990, excluding those mentioned in section (ii) below | 15% |
| 2(ii) | Motor cars apart from the ones utilised for driving them on hire; received on or after 23rd August 2019, and before 1st April 2020, and put to use before 1st April 2020 | 30% |
| 3(i) | Aeroplanes, Aero engines | 40% |
| 3(ii)(b) | Motor lorries, buses and taxis utilised for driving them on hire, received on or after the 23rd August 2019 and before 1st April 2020 and put to use before 1st April 2020 | 45% |
| 3(iii) | Commercial vehicles received on or after 1st October 1998 and before 1st April 1999 and put to use before 1st April 1999 for business or occupation as per the third proviso of Section 32(1)(ii) | 40% |
| 3(iv) | New commercial vehicles received on or after 1st October 1998 and before 1st April 1999, as a replacement of condemned vehicle of more than 15 years and is put to use before 1st April 1999 for business or occupation as per the third proviso Section 32(1)(ii) | 40% |
| 3(v) | New commercial vehicles received on or after 1st April 1999 and before 1st April 2000, as a replacement of condemned vehicle of more than 15 years and is put to use before 1st April 2000 for business or occupation as per the second proviso of Section 32(1)(ii) | 40% |
| 3(vi) | New commercial vehicles received on or after the 1st April 2002 and before the 1st April 2002 and put to use before the 1st day of april 2002 for business or other occupation | 40% |
| 3(vi)(a) | New commercial vehicles received on or after 1st January 2009 and before 1st October 2009 and are put to use before 1st October 2009 for business and other occupation | 40% |
| 3(vii) | Moulds used in plastic and rubber goods factory | 30% |
| 3(viii) | Air pollution control machines such as electrostatic precipitation systems, felt-filter systems, scrubber-counter current/packed bed/venturi/cyclonic scrubbers, ash handling system and evacuation system | 40% |
| 3(ix) | Water pollution control machines such as mechanical screen systems, mechanical skimmed oil and grease removal systems, aerated detritus chambers (including air compressor), chemical feed systems, flash mixing equipment, etc. | 40% |
| 3(x) | Solid waste control machines such as chrome/mineral/caustic/lime/cryolite recovery systems and solid waste resource and recycling recovery systems | 40% |
| 3(xi) | Plant and machinery utilised for the semiconductor industry, including all integrated circuits other than hybrid integrated circuits. This covers from large scale integration/very large scale integration to small scale integration and discrete semiconductor equipment, except mentioned in (x), (ix), (viii) of this subsection and section 8 | 30% |
| 3(ix)(a) | Life-saving medical machines such as heart and lung machines, haemodialysis, colour doppler, cobalt therapy unit, etc. | 40% |
| 4 | Glass and plastic containers which are utilised as refills; computers and also cover computer software | 40% |
| 5 | Plant and machinery utilised in processing, weaving, garment sector of the textile industry, bought under TUFs on or after the 1st April 2001 and before 1st April 2004 and is utilised before 1st April 2004 | 40% |
| 6 | Plant and machinery received and installed on or after 1st September 2002 in a project of water supply utilised for providing infrastructural facility as specified under Section 80-IA(4)(i) | 40% |
| 7 | Wooden parts utilised in artificial silk manufacturing machines, cinematograph films, match factories, quarries and mines, flour mills, salt and sugar works, iron and steel industry | 40% |
| 8 | Energy-saving equipment such as specialised boilers and furnaces, waste heat recovery machines, instrumentation and monitoring system, cogeneration system, electrical device, burners, other devices such as thin-film evaporators, mechanical vapour re-compressors, renewal energy equipment In the case of mineral oil concerns, it covers plants utilised for operations in the field (above ground distribution). Plants utilised for operations in fields (below ground) covering fittings and underground tanks and not kerbside pumps | 40% |
| 8 (xii(c)) | Oil wells not mentioned above under the section mineral oil concerns (came into effect from AY 2016-17) | 15% |
| 9 (i) and (ii) | Books, including annual publications and others and books for operating book lending libraries | 40% |
| Ships | - | - |
| 1, 2 and 3 | Ocean-going ships utilised for dredging and fishing vessels along with wooden hulls, vessels functioning in inland waters and not mentioned in the items under section 3, speed boats | 20% |
Part B: Intangible Assets
| 1 | Patents, copyrights, trademarks, franchises, licences, know-how, or other commercial rights | 25% |
Note: These depreciation rates as per the Income Tax Act are applicable from the assessment year of 2021-2022.
What Is Written-Down Value?
Written-down value shows the present value of an asset owned by a business entity after computing depreciation. It is added to the balance sheet of a corporation.
As per Section 32(1), individuals must compute depreciation with the WDV percentage of an asset. This is further evaluated in reference to an asset's actual cost.
When an individual purchases an asset in the previous year, an asset's actual cost is equivalent to WDV.
At the same time, when an asset is purchased in earlier years, WDV is equivalent to the actual cost of an asset minus depreciation as permitted under the ITA.
What Are the Methods to Compute Depreciation?
Methods to calculate depreciation as per the Income Tax Act are mentioned below:
As Per the Companies Act 1956
- Written-down value method
- Straight-line method
As Per the Companies Act 2013
- Unit of production method
- Written-down value method
- Straight-line method
As Per the Income Tax Act 1961
- Written-down value method (based on the block of assets)
- Straight-line method for units generating power
What Are the Conditions to Claim Depreciation on an Asset?
Take a look at the following criteria that individuals need to fulfil to claim depreciation on an asset:
- An assessee must fully or partly hold an asset.
- An assessee must use this asset for his or her business or occupation. If that asset is utilised for business and other purposes, the amount of depreciation that individual claims will be based on the proportion of its usage in business. Section 38 of the Income Tax Act allows the Income Tax Officer to assess the proportion of depreciation to be claimed.
- Individuals cannot avail depreciation on expenses of land.
- Co-owners of an asset can avail of depreciation based on its value.
- A taxpayer is unable to claim depreciation on a damaged asset or object that has been sold in the year in which he or she purchased it.
Thus, knowing about depreciation rates and calculating depreciation with specific methods will help individuals claim the same without any hassle.
Frequently Asked Questions
What is the depreciation rate of the solar power generating system?
The rate of depreciation of a solar generating system is 40%.
Is depreciation applicable for intangible assets?
Yes, depreciation is applicable for intangible assets such as patents and copyrights.