The depreciation rate is the percentage at which an asset’s value reduces over time due to wear and tear, usage or obsolescence. In India, the applicable depreciation rate is governed by two frameworks: the Income Tax Act, 1961, for taxation and the Companies Act, 2013, for financial reporting.
Understanding the correct depreciation rate helps businesses calculate tax deductions accurately, maintain compliant financial records and plan asset usage efficiently.
Latest depreciation rates under the Income Tax Act, 1961 (FY 2025-26)
Under the Income Tax Act, the depreciation rate is applied using the Written Down Value (WDV) method on a block of assets. A block groups assets with a similar nature and the same depreciation rate.
Below are commonly used depreciation rates for businesses:
|
Asset Class |
Asset Type |
Depreciation Rate |
|
Buildings |
Residential property |
5% |
|
Buildings |
Non-residential/commercial property |
10% |
|
Buildings |
Temporary wooden structures |
40% |
|
Furniture |
Furniture & fittings (including electrical fittings) |
10% |
|
Plant & machinery |
Motor vehicles (not used for hire) |
15% |
|
Plant & machinery |
Motor cars (Aug 2019-Apr 2020) |
30% |
|
Plant & machinery |
Taxis, buses, lorries (used for hire) |
30% |
|
Plant & machinery |
Hire vehicles (Aug 2019-Apr 2020) |
45% |
|
Equipment |
Computers & software |
40% |
|
Plant & machinery |
Pollution control equipment |
40% |
|
Books |
Books (including professional publications) |
40% |
|
Special assets |
Ships and vessels |
20% |
|
Intangible assets |
Patents, trademarks, licenses |
25% |
These depreciation rates are prescribed under tax rules and must be applied consistently for accurate tax computation.
Depreciation rates under the Companies Act, 2013
Under the Companies Act, the depreciation rate is not fixed but derived from the useful life of assets as specified in Schedule II.
Businesses can choose between:
- Straight Line Method (SLM)
- Written Down Value (WDV) method
Indicative useful life of assets:
|
Asset Type |
Useful Life |
|
RCC Frame structure |
60 years |
|
Factory buildings |
30 years |
|
Temporary structures |
3 years |
|
Furniture & fittings |
10 years |
|
Printers, copiers, office devices |
5 years |
|
Electrical installations & fittings |
10 years |
|
General plant & machinery |
15 years |
|
Computers & data processing units |
3-6 years |
|
Motor vehicles |
6-10 years |
Note: The Companies Act approach focuses on true and fair financial reporting, while the Income Tax Act determines the applicable depreciation rate for tax purposes.
Key rules affecting the application of the depreciation rate
Certain provisions impact how the depreciation rate is applied:
- Half-year rule: If an asset is used for less than 180 days, only 50% of the applicable depreciation rate is allowed
- Additional depreciation: Manufacturing businesses can claim an extra 20% on new machinery
- Rate cap: Most assets have a maximum depreciation rate of 40% under current rules
These rules directly affect the timing and amount of depreciation claimed.
Conclusion
Applying the correct depreciation rate is essential for accurate tax calculation and compliant financial reporting. Businesses must align asset classification, method selection and applicable rules to ensure consistency and efficiency.
With TallyPrime, businesses can automate depreciation calculations, apply the correct depreciation rate and maintain accurate asset records, helping simplify compliance and improve financial control.
