Depreciation
Definition
The reduction in value of an asset over time due to wear and tear. In tax context, businesses can claim depreciation as a deductible expense under the Income Tax Act. Rates vary: 15% for buildings, 40% for computers, 15-30% for machinery.
Why is Depreciation Important?
Navigating the Indian tax system requires a clear understanding of terms like Depreciation. With the introduction of the new income tax regime alongside the old one, taxpayers must evaluate their deductions, exemptions, and tax brackets carefully. This concept is a key component in optimizing your tax liabilities under the Income Tax Act and GST framework.
Proper tax planning using this metric can help individuals and businesses maximize their take-home income while remaining fully compliant with government regulations. We provide free tax calculators to help you estimate these figures accurately and make informed decisions before filing your returns.
What is Depreciation?
Depreciation is the reduction in the value of an asset over time due to wear and tear, usage, or obsolescence. In the context of income tax, it represents a non-cash expense that reduces taxable business income.
Depreciation Rates (Income Tax Act โ WDV Method)
| Asset Class | Rate |
|---|---|
| Buildings (general) | 10% |
| Buildings (temporary) | 40% |
| Furniture & Fittings | 10% |
| Plant & Machinery (general) | 15% |
| Motor Cars | 15% |
| Computers & Software | 40% |
| Intangible Assets | 25% |
Additional Depreciation
Manufacturing businesses can claim additional depreciation of 20% on new plant and machinery in the year of acquisition (Section 32(1)(iia)), subject to conditions.