Depreciation Rates for Indian Businesses Guide

Depreciation is the systematic allocation of the cost of a tangible or intangible asset over its useful life. Every business in India that owns fixed assets — whether machinery, computers, vehicles, or buildings — must account for depreciation each financial year. Failing to apply the correct rates leads to inflated profits, higher tax liability, and non-compliance with statutory audits.

In India, two separate legal frameworks govern how depreciation is calculated: the Income Tax Act, 1961 (Section 32) and the Companies Act, 2013 (Schedule II). Understanding which framework applies to your business — and at what rate — is critical before you pass any journal entries in Tally Prime.

WDV vs SLM: The Two Methods of Depreciation

Before looking at rates, you must understand the two methods of calculating depreciation:

The Income Tax Act mandates the WDV method for all depreciation claims. The Companies Act 2013 allows companies to choose either method, but must disclose the policy in their financial statements. Most Indian companies maintain two separate depreciation schedules — one for books (Companies Act) and one for tax purposes (IT Act).

What is a "Block of Assets" Under the IT Act?

Under Section 32 of the Income Tax Act read with Rule 5 of the Income Tax Rules, assets are not depreciated individually. Instead, they are pooled into groups called Blocks of Assets. Each block consists of assets of the same nature and rate. When you add a new asset, its cost is added to the block value. When you sell an asset, the sale proceeds are deducted from the block.

This means depreciation is calculated on the net written down value of the entire block, not on each asset separately. If the sale proceeds from an asset exceed the block's WDV, the surplus is treated as a Short Term Capital Gain (STCG). If the entire block is wiped out with a negative balance, it becomes a terminal depreciation claim.

Income Tax Depreciation Rate Chart (Block of Assets)

Assets are grouped into blocks, and depreciation is applied to the consolidated value of each block:

Important IT Act Rules You Must Know

The 180-Day Rule

Under the Income Tax Act, if an asset is acquired and put to use for less than 180 days during the financial year, the depreciation rate is restricted to 50% of the normal rate for that block. For example, if you purchase a laptop (normal rate: 40%) on December 1st — which gives less than 180 days of use in the financial year ending March 31st — your depreciation claim for that year is restricted to 20% of the purchase cost. From the next year onwards, the full 40% WDV rate applies.

No Bonus Depreciation for New Assets (Section 32(1)(iia) Repealed)

The additional depreciation of 20% for new plant and machinery under Section 32(1)(iia) was phased out for assets acquired after March 31, 2020. Businesses in notified backward areas may still be eligible for additional allowances under Section 32AD, but standard purchases no longer attract any bonus depreciation beyond the block rate.

Depreciation on Leased Assets

Only the owner of the asset (the lessor in a financial lease, or the lessee in an operating lease where substance-over-form applies) can claim depreciation. If you are leasing machinery and the arrangement transfers substantially all risks and rewards of ownership, the lessee claims depreciation, not the lessor.

Companies Act 2013 (Schedule II) vs IT Act Rates

For companies preparing financial statements, depreciation under the Companies Act is based on the useful life of the asset as prescribed in Schedule II. Common useful life benchmarks include:

• Buildings: 30–60 years (general factory buildings: 30 years)
• Plant and Machinery: 15 years (general)
• Computers: 3 years
• Vehicles: 8 years (motor cars)
• Furniture and Fittings: 10 years

Because the Companies Act uses useful life (not fixed rates), the actual annual depreciation charge may differ significantly from the IT Act claim. Most businesses prepare a Book-to-Tax reconciliation (Form 3CD) to reconcile these differences when filing tax returns.

Recording Depreciation in Tally Prime: Step-by-Step

Depreciation is a non-cash adjusting entry recorded at the end of the financial year (typically March 31st). In Tally Prime, use a Journal Voucher (F7):

Step 1: Create Ledgers

• Go to Gateway of Tally > Create > Ledger
• Create Depreciation on Computers A/c under Indirect Expenses
• Ensure your asset ledgers (e.g., Office Computers A/c) are under Fixed Assets

Step 2: Pass the Journal Entry

Debit:  Depreciation on Computers A/c (Indirect Expense)  ₹XX,XXX Credit: Office Computers A/c (Fixed Assets)               ₹XX,XXX Narration: Depreciation @ 40% WDV on computers for FY 2024-25

Step 3: Verify in Balance Sheet

After posting, navigate to Gateway of Tally > Balance Sheet. The Fixed Assets group should show the reduced net book value of each asset. Cross-check the Profit & Loss statement to confirm that the depreciation expense is correctly reflected under Indirect Expenses.

Step 4: Maintain a Fixed Asset Register

Always maintain a separate Fixed Asset Register (FAR) in Excel or Tally's cost centre tracking to document each asset's date of purchase, original cost, WDV at year-start, depreciation for the year, and WDV at year-end. This register is required for income tax audit (Form 3CD, Clause 18).

Automate Purchase Invoice Recording with TrulyInvoice

Accurate depreciation calculation starts with correctly recording asset purchase invoices. If a machinery or computer purchase invoice is miscoded as an expense instead of an asset, your depreciation schedule — and consequently your tax liability — will be wrong.

TrulyInvoice (plans starting at ₹399/month) is a purchase invoice automation tool built for Tally Prime users. It reads vendor invoice PDFs, extracts line-item details including HSN codes and amounts, and auto-creates purchase vouchers in Tally Prime. This means your capital asset purchases are captured immediately and accurately — with the correct ledger mapping — leaving no room for miscoding errors.

TrulyInvoice also processes bank statement PDFs from HDFC, SBI, ICICI, Axis, and other major banks. Each debit transaction is converted to its corresponding payment voucher, giving your accountant a clean view of all asset acquisitions in Tally Prime, making depreciation computation at year-end a straightforward exercise.