Maintain separate depreciation schedules for financial statements and income tax. This guide covers section 33 of the Income-tax Act, 2025 for Tax Year 2026–27 onwards and Schedule II to the Companies Act, 2013. AY 2026–27 relates to FY 2025–26 and remains under the Income-tax Act, 1961; do not confuse the assessment year with the new Act's tax year.
Useful for: Business owners, companies, manufacturers and accounting teams
1. Choose the correct depreciation basis
Different book and tax carrying amounts may create deferred-tax differences under the applicable accounting framework. Posting tax depreciation as a second book expense would count depreciation twice.
| Point | Income tax | Company accounts |
|---|---|---|
| Purpose | Calculate taxable business / professional income | Allocate the asset's depreciable amount over its useful life |
| Unit of calculation | Ordinarily a block of eligible assets at a prescribed WDV rate | An asset or significant component, using an appropriate method |
| Part-year treatment | Half the ordinary rate for qualifying current-year acquisitions used fewer than 180 days | Proportionate depreciation for additions / disposals |
| Residual value | No general Schedule II-style 5% residual-value rule | Normally no more than 5% of original cost, with justified departures disclosed |
| Result | A tax allowance in the business-income computation | An expense / cost in the financial statements |
Official guidance: Income-tax Act, 2025: depreciation · Schedule II: useful lives and depreciation
2. Common income-tax depreciation rates
Section 33 covers eligible assets owned wholly or partly and used for business or profession. Specified intangible rights qualify; goodwill is excluded. Ordinary tax depreciation follows the prescribed block rate. Special power-generation rules, non-business use and other statutory restrictions need separate consideration.
The table below summarises common entries in Appendix I to the Income-tax Rules, 2026. It is not the complete classification schedule. Check the precise asset description, business use and acquisition conditions.
| Asset / category | Rate | Classification point |
|---|---|---|
| Mainly residential buildings | 5% | Excludes hotels and boarding houses |
| Other ordinary buildings | 10% | Special water-project buildings have a separate entry |
| Purely temporary erections | 40% | For example, qualifying wooden structures |
| Furniture and fittings | 10% | Includes electrical fittings as defined in the Appendix |
| General machinery and plant | 15% | Where a special entry does not apply |
| Motor cars not run on hire | 15% | Historical acquisition / use windows can change the rate |
| Motor buses, lorries and taxis run on hire | 30% | Historical vehicle entries need separate checking |
| Moulds in rubber / plastic goods factories | 30% | Specified factory use |
| Computers, including computer software | 40% | Apply the Appendix's definition and classification |
| Listed pollution-control equipment | 40% | Only qualifying equipment in the schedule |
| Listed energy-saving / renewable-energy devices | 40% | Check the specific device and any installation conditions |
| Electrically operated vehicles | 40% | Includes qualifying battery / fuel-cell powered vehicles |
| Books for a profession or lending-library business | 40% | As covered by the specific entries |
| Ships and vessels | 20% | Ocean-going and inland-water categories listed in Part A, IV |
| Eligible intangible rights | 25% | Specified know-how, patents and similar rights; excludes goodwill |
Official guidance: Income-tax Act, 2025: depreciation · Appendix I: depreciation rates, Rules 2026
3. Asset blocks and the 180-day rule
Begin with opening tax WDV, add eligible capitalised additions, and account for applicable disposal / transfer adjustments. Disposals, cessation of a block and proceeds exceeding the block value can have capital-gains consequences, so they require a full tax working.
The half-rate restriction applies when an asset is acquired during the tax year and used for fewer than 180 days. Exactly 180 days qualifies for the full ordinary rate. Exclude additions not yet put to use. The rule does not simply halve every asset's depreciation because of a mid-year purchase date.
| Component | Value | Depreciation |
|---|---|---|
| Opening tax WDV | ₹20,00,000 | ₹3,00,000 at 15% |
| Current-year additions used at least 180 days | ₹5,00,000 | ₹75,000 at 15% |
| Current-year additions used fewer than 180 days | ₹4,00,000 | ₹30,000 at 7.5% |
| Total ordinary depreciation | ₹4,05,000 | |
| Closing tax WDV | ₹29,00,000 − ₹4,05,000 | ₹24,95,000 |
Official guidance: Income-tax Act, 2025: depreciation
4. Additional depreciation needs an eligibility review
Sections 33(8) and 33(9) provide additional depreciation for qualifying new machinery or plant in eligible manufacturing, production and specified power businesses. The ordinary additional allowance is 20% of actual cost. Where the statutory under-180-day condition applies, 10% is allowed in the first year and the remaining 10% in the immediately following year, subject to eligibility.
Do not apply this allowance automatically. Exclusions include previously used machinery, ships / aircraft, office appliances, road transport vehicles and other specified cases. The chosen tax regime also matters: for example, section 202 excludes the section 33(8) deduction when computing income under that regime. Check any applicable concessional company regime separately.
Official guidance: Income-tax Act, 2025: depreciation · Section 202: tax-regime conditions
5. Companies Act useful lives and residual value
Section 123 and Schedule II to the Companies Act, 2013 govern the company-law depreciation framework. Schedule II primarily sets useful lives. The selected method should reflect the asset's consumption pattern, with the applicable accounting standards also considered.
Residual value is the expected amount remaining at the end of useful life. The normal Schedule II ceiling is 5% of original cost; 5% is not a compulsory assumption. A different useful life or a departure from the residual-value limit requires appropriate disclosure and justification supported by technical advice. Specific regulatory prescriptions may override the general schedule.
| Asset | Useful life |
|---|---|
| Non-factory building: RCC frame | 60 years |
| Non-factory building: other than RCC | 30 years |
| Factory building | 30 years |
| Fences, wells and tube wells | 5 years |
| Other buildings, including temporary structures | 3 years |
| General plant and machinery | 15 years |
| General continuous-process plant with no special entry | 25 years |
| General furniture and fittings | 10 years |
| Furniture in specified hotels, schools and similar uses | 8 years |
| Motorcycles, scooters and mopeds | 10 years |
| Motor buses, lorries, cars and taxis run on hire | 6 years |
| Motor buses, lorries and cars not run on hire | 8 years |
| Electrically operated vehicles | 8 years |
| Office equipment | 5 years |
| Servers and networks | 6 years |
| Desktops, laptops and other end-user devices | 3 years |
| General laboratory equipment | 10 years |
| Electrical installations and equipment | 10 years |
| Hydraulic works, pipelines and sluices | 15 years |
| Aircraft and helicopters | 20 years |
Official guidance: Companies Act, 2013 · Schedule II: useful lives and depreciation
6. Calculate book depreciation using SLM or WDV
Straight line method: annual depreciation = (original cost − residual value) ÷ useful life. For a ₹10,00,000 asset with a ₹50,000 residual value and a 15-year life, the annual charge is ₹63,333.33.
Written down value method: a constant annual rate can be derived as 1 − (residual value ÷ original cost)^(1 ÷ useful life). Multiply that rate by opening book value. With the same ₹10,00,000 cost, 5% residual value and 15-year life, the derived annual WDV rate is approximately 18.10%. This is a mathematical rate for those assumptions, not a universal statutory rate.
For an addition or disposal, calculate the applicable pro-rata period. Using the SLM example for 274 days in a 365-day year gives ₹47,543.38. The linked book calculator asks for the period available for use and caps the charge so that carrying value does not fall below residual value.
Significant components with different useful lives require separate consideration. For eligible shift-working assets, Schedule II increases the charge for the double-shift or triple-shift period; assets marked NESD do not qualify. Changes in estimates, impairments, revaluations, component accounting and extra shifts require a separate assessment beyond the simple calculator.
Official guidance: Schedule II: useful lives and depreciation
7. Keep one register with separate book and tax workings
Reconcile the register to the general ledger and the actual assets. Document classification decisions and explain book-to-tax differences in the year-end working papers. The calculator provides an estimate for the stated scope; use a complete schedule when finalising accounts or a tax return.
| Record | What to capture |
|---|---|
| Identity and control | Asset code, description, location, custodian, vendor and invoice reference |
| Capitalisation | Original cost, directly attributable costs, recoverable GST treatment and addition date |
| Use and classification | Date available / put to use, tax block and rate, book useful life, residual value and method |
| Movement | Opening value, additions, transfers, disposals and proceeds, with supporting references |
| Separate schedules | Book depreciation, tax depreciation, accumulated depreciation, closing balances and reconciliation |
BEFORE YOUR CONSULTATION
Records to have ready
- Purchase invoices and capitalisation support, including GST treatment
- Evidence of the date available / put to use and business use
- Prior-year book and tax depreciation schedules
- Disposal records, technical useful-life advice and accounting policies where relevant
The final document list depends on your circumstances and the agreed service.
HOW WE CAN HELP
Discuss your requirements
with our office.
M H Consultancy can assist with the fixed-asset register, depreciation schedules, book-to-tax reconciliation and records for company accounts or tax audit. We review the asset classification and engagement scope with you.
Enquire on WhatsApp Office contact detailsGeneral guidance updated on 15 September 2026. Applicability, forms and dates depend on your circumstances and reporting period. Confirm the current requirements before filing or making a financial decision.