India Depreciation

The Block of Assets System: India's Pooling Approach

India's Income Tax Act treats depreciation through a block of assets concept under Section 32, grouping assets of the same prescribed rate into a single pool. All assets in a block share a common Written Down Value (WDV) that is increased by additions and reduced by disposals. When the aggregate sale proceeds of a block exceed the opening WDV plus additions, the surplus is a short-term capital gain. When all assets in a block are sold and proceeds fall short of WDV, the shortfall is a terminal loss deductible from business income — an outcome unique to India's block approach. Common IT Act rates include: buildings (10% for factories, 5% for others), furniture (10%), general machinery (15%), computers and software (40%), and motor vehicles (15% or 30% depending on usage and taxpayer category). For assets used for less than 180 days in the year of acquisition, only half the normal annual rate applies.

Additional Depreciation for Manufacturing Entities

Section 32(1)(iia) provides an additional depreciation of 20% on the actual cost of new machinery or plant acquired and installed by a manufacturing or production entity — a one-time allowance in the year of installation. For assets installed after 1 April 2015 in notified backward areas of Andhra Pradesh, Bihar, Telangana, and West Bengal, the rate rises to 35%. A textile manufacturer investing ₹10 crore in new looms in a qualifying backward area can claim ₹3.5 crore additional depreciation on top of the regular 15% WDV deduction of ₹1.5 crore — a combined first-year write-off of ₹5 crore against a ₹10 crore investment, dramatically improving the net present value of the capital expenditure decision.

Companies Act 2013 vs. Income Tax Act: Two Parallel Systems

Indian companies maintain two separate depreciation calculations: one for financial reporting under Schedule II of the Companies Act 2013, and another for income tax under the Income Tax Act. The Companies Act prescribes useful lives — computers have a 3-year life (roughly 63% WDV), while the Income Tax Act allows 40% WDV. The gap creates timing differences generating deferred tax liabilities disclosed under Ind AS 12 or AS 22. Large listed companies often show substantial deferred tax balances arising purely from this rate differential, making the reconciliation between book and tax depreciation a standard audit focus area. Finance professionals in India must maintain dual asset registers, each tracking a different depreciation base and rate for the same physical asset.