Meaning of Depreciation- Before knowing the Depreciation as per Income Tax Act, we must know the meaning of depreciation. In simple words, depreciation is a reduction in the value of assets over time, due in particulars to wear and tear.
In technical words, we can say that Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life, where the depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value.
The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.
Depreciation for assets purchased in cash
In one line, no depreciation as per Income Tax Act will be allowed if an asset is acquired in cash.
Clause (1) of section 43 defines the “actual cost of fixed assets” for the purpose of claiming depreciation. Whereas the second proviso to section 43(1), made disallowance of depreciation, where cash payment is exceeding Rs. 10,000 to claim depreciation.
The second proviso to section 43(1) provides that if the assessee incurs any expenditure for acquisition of any asset or part thereof in respect of which a payment or aggregate of payments made to a person in a day, by cash, exceeds Rs. 10,000, such expenditure shall be ignored for the purposes of determination of actual cost.
In other words, if an asset is acquired and the same is paid in cash of more than Rs. 10,000 in a day then such cost will not form the actual cost of the asset and hence depreciation cannot be claimed on the part of the asset which is paid in cash.
Example for assets purchased in cash
For example, if the price of an asset is Rs. 1,50,000 and if the assessee has paid Rs. 1,20,000 by cheque and Rs. 30,000 in cash then depreciation will be allowed on Rs. 1,20,000 only under the Income Tax Act. In this respect, it is important to note that payment up to Rs. 10,000 in a single day is allowed.
Hence in the given example, the assessee can pay Rs. 10,000 per day for 15 days and is eligible to claim Depreciation as per Income Tax Act on the actual cost of Rs. 1,50,000.
Also Read:- Depreciation Chart as per Companies Act, 2013
Depreciation as per Income Tax Act, 1961- Chart
In taxation, depreciation refers to a reduction in the value of assets due to the wear and tear of the assets. you can claim the deduction on depreciation on those assets which have been used by the assessee for the purpose of business or profession during the previous year. Here is the complete chart, which shows the rate of depreciation as per Income Tax Act.
|Block of assets||Depreciation allowance as a percentage (%) of written down value|
|I. BUILDING [See Notes 1 to 4 below the Table]|
|(1) Buildings which are used mainly for residential purposes except for hotels and boarding houses||5|
|(2) Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below||10|
|(3) Buildings acquired on or after the 1st day of September 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of the business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA||40|
|(4) Purely temporary erections such as wooden structures||40|
|II. FURNITURE AND FITTINGS|
|Furniture and fittings including electrical fittings [See Note 5 below the Table]||10|
|III. MACHINERY AND PLANT|
|(1) Machinery and plant other than those covered by sub-items (2), (3) and (8) below : [See Note 5A below the Table]||15|
|(2) (i) Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April 1990 except those covered under entry (ii);||15|
|(ii) Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020.||30|
|(3) (i) Aeroplanes – Aero engines||40|
|(ii) (a) Motor buses, motor lorries, and motor taxis used in a business of running them on hire other than those covered under entry (b).||30|
|(b) Motor buses, motor lorries, and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020.||45|
|(iii) The commercial vehicle which is acquired by the assessee on or after the 1st day of October 1998, but before the 1st day of April 1999 and is put to use for any period before the 1st day of April 1999 for the purposes of business or profession in accordance with the third proviso to clause (ii) of sub-section (1) of section 32 [See Note 6 below the Table]||40|
|(iv) A new commercial vehicle which is acquired on or after the 1st day of October 1998, but before the 1st day of April 1999 in replacement of condemned vehicle of over 15 years of age and is put to use for any period before the 1st day of April 1999 for the purposes of business or profession in accordance with the third proviso to clause (ii) of sub-section (1) of section 32 [See Note 6 below the Table]||40|
|(v) A new commercial vehicle which is acquired on or after the 1st day of April 1999 but before the 1st day of April 2000 in replacement of condemned vehicle of over 15 years of age and is put to use before the 1st day of April 2000 for the purposes of business or profession in accordance with the second proviso to clause (ii) of sub-section (1) of section 32 [See Note 6 below the Table]||40|
|(vi) New commercial vehicle which is acquired on or after the 1st day of April 2001 but before the 1st day of April 2002 and is put to use before the 1st day of April 2002 for the purposes of business or profession [See Note 6 below the Table]||40|
|(via) A new commercial vehicle which is acquired on or after the 1st day of January 2009 but before the 1st day of October 2009 and is put to use before the 1st day of October 2009 for the purposes of business or profession [See paragraph 6 of the Notes below this Table]||40|
|(vii) Moulds used in rubber and plastic goods factories||30|
|(viii) Air pollution control equipment, being—||40|
|(a) Electrostatic precipitation systems|
|(b) Felt-filter systems|
|(c) Dust collector systems|
|(d) Scrubber-counter current/venturi/packed bed/cyclonic scrubbers|
|(e) Ash handling system and evacuation system|
|(ix) Water pollution control equipment, being—||40|
|(a) Mechanical screen systems|
|(b) Aerated detritus chambers (including air compressor)|
|(c) Mechanically skimmed oil and grease removal systems|
|(d) Chemical feed systems and flash mixing equipment|
|(e) Mechanical flocculation and mechanical reactors|
|(f) Diffused air/mechanically aerated activated sludge systems|
|(g) Aerated lagoon systems|
|(i) Methane-recovery anaerobic digester systems|
|(j) Air floatation systems|
|(k) Air/steam stripping systems|
|(l) Urea Hydrolysis systems|
|(m) Marine outfall systems|
|(n) Centrifuge for dewatering sludge|
|(o) Rotating biological contractor or bio-disc|
|(p) Ion exchange resin column|
|(q) Activated carbon column|
|(x) (a) Solid waste control equipments being – caustic/lime/chrome/mineral/cryolite recovery systems||40|
|(b) Solid waste recycling and resource recovery systems|
|(xi) Machinery and plant, used in semi-conductor industry covering all integrated circuits (ICs) (excluding hybrid integrated circuits) ranging from small scale integration (SSI) to large scale integration/very large scale integration (LSI/VLSI) as also discrete semiconductor devices such as diodes, transistors, thyristors, triacs, etc., other than those covered by entries (viii), (ix) and (x) of this sub-item and sub-item (8) below||30|
|(Xia) Life-saving medical equipment, being—||40|
|(a) D.C. Defibrillators for internal use and pace makers|
|(c) Heart-lung machine|
|(d) Cobalt Therapy Unit|
|(e) Colour Doppler|
|(f) SPECT Gamma Camera|
|(g) Vascular Angiography System including Digital subtraction Angiography|
|(h) Ventilator used with anesthesia apparatus|
|(i) Magnetic Resonance Imaging System|
|(j) Surgical Laser [See Note 5B]|
|(k) Ventilators other than those used with anesthesia|
|(l) Gamma knife|
|(m) Bone Marrow Transplant Equipment including Silastic long-standing intravenous catheters for chemotherapy|
|(n) Fibreoptic endoscopes including Paediatric resectoscope/audit resectoscope, Peritoneoscopes, Arthroscope, Microlaryngoscope, Fibreoptic Flexible Nasal Pharyngo Bronchoscope, Fibreoptic Flexible Laryngol Bronchoscope, Video Laryngol Bronchoscope, and Video Oesophago Gastroscope, Stroboscope, Fibreoptic Flexible Oesophago Gastroscope|
|(o) Laparoscope (single incision)|
|(4) Containers made of glass or plastic used as re-fills||40|
|(5) Computers including computer software [See note 7 below the Table]||40|
|(6) Machinery and plant, used in weaving, processing and garment sector of the textile industry, which is purchased under TUFS on or after the 1st day of April 2001 but before the 1st day of April 2004 and is put to use before the 1st day of April 2004 [See Note 8 below the Table]||40|
|(7) Machinery and plant acquired and installed on or after the 1st day of September 2002 in a water supply project or a water treatment system and which is put to use for the purpose of the business of providing infrastructure facility under clause (i) of sub-section (4) of section 80-IA [See Notes 4 and 9 below the Table]||40|
|(8) (i) Wooden parts used in artificial silk manufacturing machinery||40|
|(ii) Cinematograph films – bulbs of studio lights||40|
|(iii) Match factories – Wooden match frames||40|
|(iv) Mines and quarries :|
|(a) Tubs, winding ropes, haulage ropes, and sand stowing pipes||40|
|(b) Safety lamps|
|(v) Saltworks – Salt pans, reservoirs, and condensers, etc., made of earthy, sandy or clayey material or any other similar material||40|
|(vi) Flour mills – Rollers||40|
|(vii) Iron and steel industry – Rolling mill rolls||40|
|(viii) Sugar works – Rollers||40|
|(ix) Energy saving devices, being—|
|A. Specialised boilers and furnaces:||40|
|(a) Ignifluid/fluidized bed boilers|
|(b) Flameless furnaces and continuous pusher type furnaces|
|(c) Fluidized bed type heat treatment furnaces|
|(d) High-efficiency boilers (thermal efficiency higher than 75 percent in case of coal-fired and 80 percent in case of oil/gas-fired boilers)|
|B. Instrumentation and monitoring system for monitoring energy flows:||40|
|(a) Automatic electrical load monitoring systems|
|(b) Digital heat loss meters|
|(c) Micro-processor based control systems|
|(d) Infra-red thermography|
|(e) Meters for measuring heat losses, furnace oil flow, steam flow, electric energy, and power factor meters|
|(f) Maximum demand indicator and clamp-on power meters|
|(g) Exhaust gases analyzer|
|(h) Fuel oil pump test bench|
|C. Waste heat recovery equipment:||40|
|(a) Economisers and feedwater heaters|
|(b) Recuperators and air pre-heaters|
|(c) Heat pumps|
|(d) Thermal energy wheel for high and low-temperature waste heat recovery|
|D. Co-generation systems:||40|
|(a) Back pressure pass out, controlled extraction, extraction-cum-condensing turbines for co-generation along with pressure boilers|
|(b) Vapour absorption refrigeration systems|
|(c) Organic Rankine cycle power systems|
|(d) Low inlet pressure small steam turbines|
|E. Electrical equipment:||40|
|(a) Shunt capacitors and synchronous condenser systems|
|(b) Automatic power cut off devices (relays) mounted on individual motors|
|(c) Automatic voltage controller|
|(d) Power factor controller for AC motors|
|(e) Solid state devices for controlling motor speeds|
|(f) Thermally energy-efficient stenters (which require 800 or fewer kilocalories of heat to evaporate one kilogram of water)|
|(g) Series compensation equipment|
|(h) Flexible AC Transmission (FACT) devices – Thyristor controlled series compensation equipment|
|(i) Time of Day (ToD) energy meters|
|(j) Equipment to establish transmission highways for National Power Grid to facilitate the transfer of surplus power of one region to the deficient region|
|(k) Remote terminal units/intelligent electronic devices, computer hardware/software, router/bridges, other required equipment, and associated communication systems for supervisory control and data acquisition systems, energy management systems, and distribution management systems for power transmission systems|
|(l) Special energy meters for Availability Based Tariff (ABT)|
|(a) 0 to 10 percent excess air burners|
|(b) Emulsion burners|
|(c) Burners using air with high pre-heat temperature (above 300°C)|
|G. Other equipment:||40|
|(a) Wet air oxidation equipment for recovery of chemicals and heat|
|(b) Mechanical vapour recompressors|
|(c) Thin film evaporators|
|(d) Automatic micro-processor based load demand controllers|
|(e) Coal based producer gas plants|
|(f) Fluid drives and fluid couplings|
|(g) Turbo charges/super-charges|
|(h) Sealed radiation sources for radiation processing plants|
|(x) Gas cylinders including valves and regulators||40|
|(xi) Glass manufacturing concerns – Direct fire glass melting furnaces||40|
|(xii) Mineral oil concerns:|
|(a) Plant used in field operations (above ground) distribution – Returnable packages||40|
|(b) Plant used in field operations (below ground), but not including kerbside pumps including underground tanks and fittings used in field operations (distribution) by mineral oil concerns|
|(c) Oil wells not covered in clauses (a) and (b) (with effect from the assessment year 2016-17)||15|
|(xiii) Renewal energy devices being—|| |
|(a) Flat plate solar collectors|
|(b) Concentrating and pipe type solar collectors|
|(c) Solar cookers|
|(d) Solar water heaters and systems|
|(e) Air/gas/fluid heating systems|
|(f) Solar crop driers and systems|
|(g) Solar refrigeration, cold storages and air-conditioning systems|
|(h) Solar steels and desalination systems|
|(i) Solar power generating systems|
|(j) Solar pumps based on solar-thermal and solar-photovoltaic conversion|
|(k) Solar-photovoltaic modules and panels for water pumping and other applications|
|(l) Windmills and any specially designed devices which run on wind-mills installed on or before March 31, 2012|
|(m) Any special devices including electric generators and pumps running on wind energy installed on or before March 31, 2012|
|(n) Biogas plant and biogas engines|
|(o) Electrically operated vehicles including battery powered or fuel-cell powered vehicles|
|(p) Agricultural and municipal waste conversion devices producing energy|
|(q) Equipment for utilizing ocean waste and thermal energy|
|(r) Machinery and plant used in the manufacture of any of the above sub-items|
|(9) (i) Books owned by assessees carrying on a profession—|
|(a) Books, being annual publications||40|
|(b) Books, other than those covered by entry (a) above||40|
|(ii) Books owned by assessees carrying on business in running lending libraries||40|
|(1) Ocean-going ships including dredgers, tugs, barges, survey launches, and other similar ships used mainly for dredging purposes and fishing vessels with a wooden hull||20|
|(2) Vessels ordinarily operating on inland waters, not covered by sub-item (3) below||20|
|(3) Vessels ordinarily operating on inland waters being speed boats [See Note 10 below the Table]||20|
|Know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature||25|
Some Comman Assets Depreciation Rates
The depreciation rate is the percentage rate at which assets are depreciated across the estimated productive life of assets.
|Depreciable Assets||Depreciation As per Income Tax Act|
|Plant & Machinery||15%|
|Air Conditioner- AC*||10%|
* Here Air Conditioner and TV considered under Electric Fitting Category
The above depreciation rates are for those assets which are common in nature and used in most of the places, for a complete chart of the assets, you can follow the chart/link given under the current post.
Notes to Depreciation chart
Here are some notes which are relevant for Depreciation as per Income Tax Act chart.
1. “Buildings” include roads, bridges, culverts, wells, and tube wells.
2. A building shall be deemed to be a building used mainly for residential purposes if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-third percent of its total built-up floor area and shall include any such building in the factory premises.
3. In respect of any structure or work by way of renovation or improvement in or in relation to a building referred to in Explanation 1 of clause (ii) of sub-section (1) of section 32, the percentage to be applied will be the percentage specified against sub-item (1) or (2) of the item I as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected.
Where the structure is constructed or the work is done by way of extension of any such building, the percentage to be applied would be such percentage as would be appropriate, as if the structure or work constituted a separate building.
4. The water treatment system includes a system for desalination, demineralization, and purification of water.
5. “Electrical fittings” include electrical wiring, switches, sockets, other fittings, and fans, etc.
5A. Rate of depreciation shall be 40% if conditions of Rule 5(2) are satisfied.
5B. Applicable from the Assessment year 2004-05.
6. “Commercial vehicle” means “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi-cab”, “motor-cab”, “tractor” and “road-roller”.
The expressions “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle”, “medium passenger motor vehicle”, “maxi-cab”, “motor-cab”, “tractor” and “road-roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988).
7. “Computer software” means any computer program recorded on any disc, tape, perforated media, or other information storage device.
8. “TUFS” means Technology Upgradation Fund Scheme announced by the Government of India in the form of a Resolution of the Ministry of Textiles vide No. 28/1/99-CTI of 31-3-1999.
9. Machinery and plant include pipes needed for delivery from the source of supply of raw water to the plant and from the plant to the storage facility.
10. “Speed boat” means a motorboat driven by a high-speed internal combustion engine capable of propelling the boat at a speed exceeding 24 kilometers per hour in still water and so designed that when running at a speed, it will plane, i.e., its bow will rise from the water.
Join our Social Community
Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.
Feedback/Suggestion- Hope you all find it useful, please give your valuable feedback & let us know if there is an error. Thanks in Advance
Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)