Depreciation under the Companies Act vs the Income-tax Act: a practical comparison

Why there are two sets of depreciation

Depreciation spreads the cost of an asset over the years you use it. In India you usually calculate it twice, for two different purposes:

• Books of account (Companies Act, 2013): companies prepare financial statements using the useful lives in Schedule II. This shows a fair picture of profit and of what the assets are worth.
• Tax return (Income-tax law): every business, whether a company, firm, LLP or proprietor, works out taxable profit using the Income-tax depreciation rates, applied to blocks of assets on the written down value.

Because the rules differ, the two numbers differ every year. Your CA reconciles them, and for companies the timing difference shows up as deferred tax. Proprietorships and partnership firms are not bound by Schedule II; many simply use the Income-tax rates in their books too, which is a choice to discuss with your CA.

Companies Act, 2013: Schedule II in plain words

Useful life, not a rate

Schedule II does not give depreciation percentages. Part C lists the useful life of each class of asset in years, for example 3 years for laptops and desktops and 10 years for general furniture. Schedule II defines useful life as the period over which an asset is expected to be available for use by the company.

Residual value of up to 5%

The residual value, what the asset is expected to be worth at the end of its life, should normally not be more than 5% of its original cost. Only the cost minus residual value (the "depreciable amount") is depreciated.

A different life is allowed, with justification

A company can use a useful life or residual value different from Schedule II, but the financial statements must disclose the difference and give a justification supported by technical advice.

SLM or WDV

The company chooses a method, usually straight line (SLM) or written down value (WDV), and applies it consistently. From the useful life and residual value you can work out the yearly charge:

Pro rata in the year of purchase or sale

When an asset is added or sold during the year, depreciation is calculated pro rata: from the date of addition, or up to the date of sale, discard, demolition or destruction. A laptop put to use on 1 October gets roughly half a year's depreciation in that first year.

Extra shifts

For assets worked in double shift, depreciation for that period goes up by 50%; for triple shift, by 100%. This does not apply to assets marked "NESD" (no extra shift depreciation) in Schedule II. It matters mainly for factories.

Income-tax: blocks of assets and WDV rates

Block of assets

Under the Income-tax law you do not depreciate each asset separately. Assets of the same class with the same rate form a block, for example all computers at 40%. Depreciation is the block rate applied to the block's written down value: opening WDV, plus additions during the year, minus money received from assets sold. When you sell an asset, the sale price comes off the block; if the block becomes negative or empty, capital gains rules apply. That is a conversation for your CA.

Mostly WDV

For almost all businesses the Income-tax rates are WDV rates. The common ones: computers including software 40%, furniture and fittings 10%, general plant and machinery 15%, and motor cars (other than those used in a business of running them on hire) 15%.

The 180-day rule: half rate in the first year

If an asset is acquired during the year and put to use for less than 180 days in that year, you get only half the normal rate for that first year. Under the 1961 Act this is the second proviso to section 32(1) ("restricted to fifty per cent"); under the 2025 Act it is section 33(4) ("50% of the prescribed rate"). From the next year, the full rate applies.

Counting the put-to-use day as day 1, an asset put to use on or before 3 October has at least 180 days up to 31 March in a normal year and gets the full rate; from 4 October it gets half. If February of that financial year has 29 days, the cut-off moves one day later. Close to the line, confirm the day count with your CA.

Unlike Schedule II, there is no day-by-day pro rata: an asset put to use on 1 April and one put to use on 3 October get the same full-year depreciation.

Additional depreciation for manufacturers

Businesses engaged in manufacturing or production, and in power generation, transmission or distribution, may also be able to claim additional depreciation of 20% of the actual cost of new plant and machinery in the first year (10% if used for less than 180 days, with the other 10% in the next year). Conditions apply; ask your CA. Our calculator does not include it.

Rate table for common office assets

The Schedule II useful lives and Income-tax rates below are from the official sources listed at the end of this page. The SLM and WDV percentages in the middle columns are not printed in Schedule II; we derived them from the useful life with a 5% residual value using the formulas above.

* Derived from the useful life with a 5% residual value: SLM = 95% ÷ life; WDV = 1 − 0.05^(1/life). Rounded to two decimals.
† Servers fall within "computers including computer software". Whether a particular piece of network equipment counts as a computer is a question to settle with your CA.
‡ The Income-tax rate table has no separate "office equipment" block. Items such as photocopiers and air conditioners are generally placed in the general plant and machinery block at 15%; confirm the classification with your CA.

Two other Schedule II lives worth knowing:

• Furniture and fittings used in schools, colleges and other educational institutions, hotels, restaurants, libraries and similar places: 8 years instead of 10.
• Motor cars used in a business of running them on hire: 6 years. Continuous process plant: 25 years.

For buildings, the Income-tax rates are 5% for buildings used mainly for residential purposes (other than hotels and boarding houses) and 10% for other buildings.

Worked example: one laptop, two answers

A company buys a laptop for ₹1,00,000 (GST credit claimed, so GST is not in the cost) and puts it to use on 1 October 2025. From that date to 31 March 2026 is 182 days out of 365.

• Books: Schedule II, 3 years, SLM, 5% residual (₹5,000). Depreciable amount ₹95,000, so ₹31,666.67 a year, pro rata in the first and last years.
• Tax: computers block at 40% WDV. 182 days is not less than 180, so the full rate applies in the first year. (Shown here for one asset; in the return it is part of the computers block.)

Book depreciation for 2025-26 is ₹31,666.67 × 182 ÷ 365 = ₹15,789.95. The book life ends on 30 September 2028, so 2028-29 carries the remaining 183 days and brings the value down to the ₹5,000 residual. On the tax side the WDV keeps reducing by 40% a year and never reaches zero on its own.

Now move the purchase to 15 November 2025. That is only 137 days to 31 March, so the tax depreciation for 2025-26 is halved: ₹1,00,000 × 20% = ₹20,000. In 2026-27 the full 40% applies on ₹80,000, which is ₹32,000, then ₹19,200 in 2027-28. In the books, the change is simply a smaller pro-rata first year.

You can run both versions, with your own figures, in our free depreciation calculator. It handles SLM and WDV, useful life or rate, the residual value, day-based pro rata and the 180-day half-rate rule.

What this means in practice

• Keep both dates. Purchase date and put-to-use date can be months apart for machinery. Both rules depend on when the asset was ready and used.
• Keep your categories aligned. If your register's categories match both the Schedule II classes and the Income-tax blocks, the year-end work is mostly mechanical. Our fixed asset register format guide shows the columns to keep.
• Watch the October purchases. Buying and installing a costly machine in September rather than October can double its first-year tax depreciation. Don't let tax drive a purchase on its own, but do know the date matters.
• Record disposals properly. For the books you need depreciation up to the date of sale; for tax the sale value reduces the block. Both need the date and amount.
• Reconcile every year. The total of your asset register should match the fixed asset schedule in the accounts.

How Assets Tracker helps

Assets Tracker calculates depreciation as per both the Income-tax Act and the Companies Act from the same asset register (Growth plan and above), so the dates, costs and categories only have to be entered once. You can export the register and depreciation to Excel or PDF for your CA, or give your auditor read-only access with the auditor role. The register also carries the things depreciation alone doesn't: photos, labels, custodians, warranty and AMC reminders, and approval before disposal on the Business plan.

See how this fits your sector: schools, hospitals, offices and CA firms, factories. हिंदी में: एसेट ट्रैकिंग सॉफ्टवेयर।