The depreciation rate for computers in India is 40% per year under the Income Tax Act (ITA), 1961, calculated on the written-down value (WDV). For accounting under the Companies Act, 2013, depreciation is typically calculated at 60% of WDV or on a straight-line basis over an estimated useful life of 3 years.
The applicable rate depends on whether the calculation is for tax purposes or financial reporting, and using the wrong method can lead to incorrect profit reporting or missed deductions.
Why do computers attract a higher depreciation rate?
Assets depreciate faster when they become obsolete quickly. The Central Board of Direct Taxes (CBDT) and the Ministry of Corporate Affairs (MCA) recognise that computers and computer software depreciate rapidly due to technological advancement, which is why they are placed in a higher depreciation block rather than general plant and machinery (15% under the ITA).
This directly affects tax liability: a higher depreciation charge in the early years reduces taxable profit, thereby lowering short-term tax payable. The trade-off is that lower depreciation is available in later years.
What are the depreciation rates for computers and related assets
The table below covers the depreciation rates applicable to computers and related assets under both the ITA and the Companies Act. Always verify the latest schedule from official notifications before filing, as rates may be updated.
|
Asset type |
Income Tax Act (WDV) |
Companies Act – WDV |
Companies Act – Straight Line Method (SLM) (useful life) |
|---|---|---|---|
|
Computers and computer software |
40% |
63.16% |
33.33% (3 years) |
|
UPS and accessories (used with computers) |
40% |
63.16% |
3 years |
|
Servers and networking equipment |
40% |
39.30% |
6 years |
How to calculate computer depreciation under the Income Tax Act
Under the ITA, depreciation on computers is calculated using the block of assets method. All business-owned computers are treated as a single block, and the 40% rate is applied to the opening WDV of the block, plus additions during the year, minus the sale proceeds of any assets sold.
Step-by-step calculation
- Step 1- Identify the opening WDV: This is the closing WDV from the previous financial year.
- Step 2- Add new purchases: Include the full cost of computers purchased during the year. If a computer is purchased after 3 October (more than 180 days remaining in the financial year), the full 40% depreciation is allowed. If it is purchased on or after 4 October (180 days or fewer remaining), only 20% is allowed in that year.
- Step 3- Deduct sale proceeds: Subtract the sale value of any computers disposed of during the year from the block.
- Step 4- Apply 40% rate: Apply 40% depreciation on the resulting block value to arrive at the allowable depreciation for the year.
How is depreciation calculated under the Companies Act, 2013
For statutory financial reporting, Schedule II of the Companies Act, 2013, governs depreciation. Companies can use either the WDV method (63.16% for computers) or the SLM method based on a three-year useful life. Unlike the Income Tax Act, this is not a block method and each asset is tracked separately.
The Companies Act depreciation is important for the profit and loss account and balance sheet presented to shareholders and regulators. It is separate from tax depreciation under the ITA, meaning many businesses maintain two depreciation schedules: one for accounting and one for tax purposes.
The difference between the two gives rise to deferred tax, which must be disclosed under Ind AS 12 or AS 22, depending on the applicable accounting standards.
Conclusion
Using the correct depreciation rate for computers directly impacts taxable profit, reported financial performance and the outcome of any tax scrutiny. The 40% rate under the ITA and the Companies Act rates (WDV or SLM over three years) serve different purposes and must be applied in the right context rather than interchangeably.
Accurate asset classification, proper tracking of purchase timing (including the 180-day rule) and regular reconciliation between tax and book depreciation prevent errors from accumulating over time. Businesses that maintain a structured fixed asset register and automate depreciation tracking through accounting systems such as TallyPrime reduce compliance risks, improve audit readiness and ensure clean financial records from the moment an asset is purchased.
