Contents
- 1 Depreciation Calculator — SLM & WDV Methods
- 1.1 What is Depreciation?
- 1.2 SLM vs WDV — Method Comparison
- 1.3 Income Tax Depreciation Rates (Section 32) — Common Assets
- 1.4 Companies Act 2013 — Schedule II Useful Lives
- 1.5 Worked Example — Manufacturing Plant
- 1.6 Block of Assets Concept (Income Tax Only)
- 1.7 Additional Depreciation (Section 32(1)(iia))
- 1.8 Depreciation vs Amortisation
- 1.9 Frequently Asked Questions
- 1.10 Related Calculators
Depreciation Calculator — SLM & WDV Methods
Calculate Straight Line and Written Down Value depreciation per Companies Act 2013 and Income Tax Act Section 32 (Block of Assets).
What is Depreciation?
Depreciation is the systematic allocation of an asset’s cost over its useful life — recognising that physical assets (machinery, vehicles, computers, buildings) wear out and lose value over time. It’s a non-cash expense that reduces book profit and taxable income. Two methods dominate Indian accounting: Straight Line Method (SLM) and Written Down Value (WDV).
Why Depreciation Matters
- Tax saving: Reduces taxable profit, lowering income tax
- True profitability: Matches asset cost to revenue earned from it (matching principle)
- Asset replacement planning: Tracks declining book value for replacement budgeting
- Loan negotiations: Banks use book values for collateral assessment
- Sale of asset: Compares sale price to written-down book value to determine gain/loss
SLM vs WDV — Method Comparison
| Feature | Straight Line Method (SLM) | Written Down Value (WDV) |
|---|---|---|
| Formula | (Cost − Salvage) / Useful Life | Book Value × Rate |
| Depreciation Pattern | Same every year | Highest in Year 1, declining thereafter |
| Book Value Pattern | Linear decline | Exponential decline (never zero) |
| Best For | Buildings, land improvements, intangibles | Vehicles, computers, machinery (faster obsolescence) |
| Income Tax Act | Not allowed (with few exceptions) | Mandatory (Block of Assets concept) |
| Companies Act | Allowed (Schedule II) | Allowed (Schedule II) |
| Tax Benefit Timing | Spread evenly | Front-loaded (better cash flow early) |
Income Tax Depreciation Rates (Section 32) — Common Assets
| Asset Category | Block of Assets | WDV Rate |
|---|---|---|
| Buildings (residential) | Block I | 5% |
| Buildings (commercial/factory) | Block II | 10% |
| Furniture and fittings | Block III | 10% |
| Plant and Machinery (general) | Block IV | 15% |
| Motor cars (not used in business of hire) | Block IV | 15% |
| Computers and software | Block V | 40% |
| Books (annual publications) | — | 40% |
| Pollution control equipment | — | 40% |
| Motor buses, lorries, taxis used in hire business | — | 30% |
| Patents, copyrights, trademarks (intangibles) | — | 25% |
| Mobile phones | Block IV | 15% |
Half-rate rule: If asset is used for less than 180 days in the year of acquisition, only half the depreciation rate applies in that year.
Companies Act 2013 — Schedule II Useful Lives
| Asset | Useful Life (Years) | Implied SLM Rate |
|---|---|---|
| General buildings (RCC) | 60 | 1.58% |
| Buildings (other than RCC) | 30 | 3.17% |
| Plant and Machinery (general) | 15 | 6.33% |
| Office equipment | 5 | 19.00% |
| Computer hardware | 3 | 31.67% |
| Computer software | 3-6 | 15.83-31.67% |
| Motor vehicles (cars) | 8 | 11.88% |
| Motor vehicles (commercial) | 6 | 15.83% |
| Furniture and fittings | 10 | 9.50% |
| Mobile phones | 3-5 | 19.00-31.67% |
Useful lives assume 5% residual value. Companies can deviate with justification and disclosure.
Worked Example — Manufacturing Plant
A small Pune-based plastics manufacturer buys an injection moulding machine for ₹50 lakh on 1 April 2025. Salvage value estimated ₹2 lakh. Useful life 10 years (Companies Act SLM) OR WDV rate 15% (Income Tax).
SLM (Companies Act)
| Depreciable amount | ₹50L − ₹2L = ₹48,00,000 |
| Annual depreciation | ₹48L / 10 = ₹4,80,000 |
| Monthly | ₹40,000 |
| Book value end of Y5 | ₹50L − (5×₹4.8L) = ₹26,00,000 |
WDV (Income Tax @ 15%)
| Year | Opening BV | Depreciation | Closing BV |
|---|---|---|---|
| Y1 | 50,00,000 | 7,50,000 | 42,50,000 |
| Y2 | 42,50,000 | 6,37,500 | 36,12,500 |
| Y3 | 36,12,500 | 5,41,875 | 30,70,625 |
| Y5 | — | — | ~22,18,000 |
| Y10 | — | — | ~9,84,000 |
WDV gives front-loaded depreciation = better tax savings in early years = better NPV. Companies pay deferred tax to bridge the difference between book and tax depreciation.
Block of Assets Concept (Income Tax Only)
Under Income Tax Act, individual assets are NOT depreciated separately. They’re grouped into Blocks by asset class and rate. Depreciation = Block opening WDV × Rate − Sales in block.
- When you buy more assets in same block → Block WDV increases
- When you sell an asset → Block WDV reduces by sale value (not original cost)
- If sale > Block WDV → Block becomes nil; excess is “Short-Term Capital Gain” (Sec 50)
- If all assets in block are sold but Block WDV remains positive → Loss is “Short-Term Capital Loss”
- No depreciation if Block WDV becomes zero, even if assets are still being used
Additional Depreciation (Section 32(1)(iia))
For new plant & machinery purchased and installed by manufacturers, ADDITIONAL 20% depreciation is allowed in the YEAR OF ACQUISITION (over and above normal 15% WDV). Not available for:
- Office appliances, computers
- Vehicles
- Ships, aircraft
- Plant installed in office/residential premises
- Power generation/distribution units (have separate 100% depreciation)
If asset is used for less than 180 days, additional depreciation is restricted to 10% in year 1 and remaining 10% in year 2.
Depreciation vs Amortisation
- Depreciation: For tangible assets (machinery, vehicles, buildings, computers)
- Amortisation: For intangible assets (patents, copyrights, trademarks, goodwill, software development cost)
- Depletion: For natural resources (mines, oil wells, quarries)
All three reduce profit and asset values; only nomenclature differs. Income Tax Act allows depreciation on both tangibles and intangibles (no separate “amortisation”); Companies Act distinguishes them.
Frequently Asked Questions
What is the difference between SLM and WDV?
SLM (Straight Line) gives equal depreciation every year throughout asset’s life. WDV (Written Down Value) gives higher depreciation in early years declining over time. Both yield the same total depreciation over the asset’s life (with adjustments), but the timing differs significantly — affecting cash flow and tax planning.
Can I switch from SLM to WDV mid-way?
For Companies Act: Yes, but it’s a change in accounting policy requiring restatement with disclosure. The cumulative effect is adjusted in retained earnings. For Income Tax: WDV is mandatory — no switching question.
Why does the Income Tax Act mandate WDV?
Front-loaded depreciation (WDV) gives businesses immediate tax relief, encouraging investment in productive assets. It also matches economic reality better — most assets lose value fastest in early years (especially vehicles, computers).
What is the half-rate rule?
For Income Tax: If a new asset is acquired and used for less than 180 days in the year of acquisition, depreciation is restricted to HALF the prescribed rate in that year. So a 15% rate becomes 7.5% in Year 1 if usage was 180 days or less. Full rate from Year 2 onwards.
Is land depreciable?
No, land is NOT depreciable — under both Income Tax and Companies Act. Land has unlimited useful life. Only buildings and improvements on land are depreciable. When buying property, separate the land value (non-depreciable) from building value (depreciable).
How is depreciation different for personal vs business assets?
Personal-use assets get NO depreciation deduction. Only assets used “for the purpose of business or profession” qualify. If asset has mixed use, depreciation is apportioned (e.g., 70% business use → 70% depreciation allowed).
What happens to depreciation when an asset is destroyed?
Insurance receipt is treated as sale value in the Block. If insurance > WDV of remaining block, excess is taxable (Sec 50). If business is wound up and asset is junked, terminal loss can be claimed in some cases.
Can I claim depreciation on a car bought in spouse’s name?
No. Asset must be owned by the assessee (you/your business) and used for business. Ownership is established by registration documents, not by who paid. Cars in personal name used for business = mixed-use issues; better to buy in business name.
What is “Bonus Depreciation” or “Accelerated Depreciation”?
The Indian term is “Additional Depreciation” under Sec 32(1)(iia) — 20% extra in Year 1 for new plant & machinery (manufacturers only). Solar/wind power plants get 100% depreciation in Year 1 (concessional). Many SEZ units enjoy 100% depreciation in early years.
How does GST affect depreciation calculation?
If you claim Input Tax Credit (ITC) on GST paid for asset, the depreciable cost is the asset value EXCLUDING GST. If ITC is NOT claimed, full invoice value (incl. GST) is depreciable. Section 16(3) of CGST Act mandates this.
What is the difference between accounting and tax depreciation?
Accounting depreciation (Companies Act, Schedule II) follows useful life methodology. Tax depreciation (IT Act, Sec 32) follows fixed WDV rates by block. The difference creates “Deferred Tax” — a balance sheet item bridging the gap. Most companies have higher tax depreciation in early years, creating deferred tax liability.