Depreciation Rates for FY 2025-26 Under Income Tax Act

Depreciation, as outlined under the Income Tax Act, is a crucial mechanism enabling businesses to account for the reduction in value of tangible assets due to wear and tear, obsolescence, or usage over time. By claiming depreciation, businesses can reduce their taxable income, thereby lowering their overall tax liability. Understanding depreciation rates and their applicability is essential to ensure compliance with tax regulations and optimise financial planning.

Depreciation refers to the systematic allocation of an asset’s cost over its useful life. In taxation, it is recognised as an expense that reduces taxable income. This concept is vital for businesses as it allows them to adjust asset values and claim deductions for wear and tear, ensuring accurate financial reporting. Under the Income Tax Act, depreciation plays a key role in maintaining fair asset valuations and reducing tax burdens.

The Income Tax Act categorises assets into blocks based on their nature and usage, such as buildings, machinery, furniture, and vehicles. Depreciation is calculated collectively for each block rather than individually for every asset. This grouping simplifies calculations and ensures uniform treatment of similar assets. Businesses must accurately classify assets into blocks to comply with taxation rules and optimise depreciation claims.

To claim depreciation under the Income Tax Act, the following conditions must be met:

• The asset must be owned by the taxpayer.
• The asset should be used for business or professional purposes during the relevant financial year.
• Depreciation cannot be claimed on assets used for personal purposes.
  Compliance with these rules ensures businesses stay within the legal framework while optimising tax deductions.

Written Down Value (WDV) is the net book value of an asset after accounting for depreciation. It is calculated by subtracting accumulated depreciation from the asset’s original cost. The WDV method is commonly used under the Income Tax Act to determine the remaining value of an asset for tax purposes. Accurate WDV calculations are essential for claiming depreciation and maintaining compliance.

The amount of depreciation allowed is calculated using prescribed rates under the Income Tax Act. The formula involves applying the depreciation rate to the WDV of the asset block at the beginning of the financial year. For new assets, the depreciation amount is proportionate to the duration of use within the financial year. Businesses must adhere to these rules to ensure proper tax deductions.

The following table outlines depreciation rates applicable for FY 2025-26 for commonly used assets:

Below is a detailed chart of depreciation rates for various asset categories under the Income Tax Act for FY 2025-26:

The Income Tax Act prescribes two methods for calculating depreciation:

1. Straight Line Method (SLM): Depreciation is calculated uniformly over the asset’s useful life.
2. Written Down Value Method (WDV): Depreciation is calculated as a percentage of the asset’s WDV.

For example, if an asset’s WDV is Rs. 1 lakh and the depreciation rate is 10%, the depreciation amount for the year would be Rs. 10,000.

AS-22 and IND AS 12 are accounting standards dealing with deferred tax assets and liabilities. While AS-22 focuses on timing differences, IND AS 12 adopts a balance sheet approach. Both frameworks emphasise accurate tax calculations related to depreciation, ensuring businesses adhere to financial reporting norms and minimise discrepancies.

Depreciation is a vital component of the Income Tax Act, helping businesses manage asset valuations and reduce taxable income. By understanding depreciation rates, methods, and compliance requirements, businesses can optimise their tax planning and ensure adherence to regulations.