Direct Taxes

Rates of Depreciation

I. Block of Assets

The expressions Assets and Blocks of Assets w.e.f. 1-4-1999 shall mean a group of assets falling within a class of assets comprising:

Tangible Assets being buildings, machinery, plant or furniture.
Intangible Assets being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature; in respect of which same percentage of depreciation is prescribed.

II. Rates of Depreciation

Sr. No.	Block of assets		RATE % (for AY 2006-07 to AY 2017-18)	RATE % (for AY 2018-19 onwards) (Refer Note 1)
I	Buildings : (See Note 4)
1	Buildings which are used mainly for residential purposes except hotels and Boarding House		5	5
2	Buildings which are not used mainly for residential purposes and other than mentioned in 1 & 3		10	10
3	Buildings acquired on or after 1-9-2002 for installing P & M forming part of water supply project or water treatment system and put to use for the purpose of providing infrastructure facilities u/s. 80-IA(4)(i)		100	40
4	Purely temporary erections such as wooden structures		100	40
II	Furniture and fittings including electrical fittings		10	10
III	Machinery and plant : (See Note 5)
1	Machinery and plant other than those covered by sub-items 2, 3 and 8 below		15	15
2	Motor-cars (other than those used in business of running them on hire) acquired or put to use on or after 1st April, 1990		15	15
3	i.	Aeroplane — Aeroengines	40	40
	ii.	Motor buses, Motor lorries and Motor taxies used in a business of running them on hire	30	30
	iii.	Commercial vehicle acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 for the purposes of business or profession	40	40
	iv.	New commercial vehicle acquired on or after 1-10-1998 but before 1-4-1999 and is put to use before 1-4-1999 in replacement of condemned vehicle of over 15 years of age for the purpose of business or profession	60	40
	v.	New commercial vehicle acquired on or after 1-4-1999 but before 1-4-2000 in replacement of condemned vehicle of over 15 years of age and is put to use before 1-4-2000 for the purpose of business or profession	60	40
	vi.	New commercial vehicle acquired on or after 1-4-2001 but before 1-4-2002 and is put to use before 1-4-2002 for the purpose of business or profession	50	40
	vi. a)	New commercial vehicle acquired on or after 1-1-2009 but before 1-10-2009 and is put to use before 1-10-2009 for the business or profession	50	40
	vii.	Moulds used in rubber and plastic goods factories	30	30
	viii.	Air pollution control equipments	100	40
	ix.	Water pollution control equipments	100	40
	x.	Solid waste control equipments	100	40
	xi.	P & M used in semi-conductor industry	30	30
	xi.a)	Life saving medical equipments (For Items refer to Rule 5 App. I)	40	40
4	Containers made of glass or plastic used as refills		50	40
5	Computers (including computer software)		60	40
6	Machinery and plants used in weaving processing, and garment sector of textile industry purchased under TUFS on or after 1-4-2001 but before 1-4-2004 and is put to use before 1-4-2004		50	40
7 & 8	For other items of P & M refer to Rule 5 App. 1		100/80/60	40
9	i.	Books owned by assessees carrying on a profession
	a.	Annual publication	100	40
	b.	Other books	60	40
	ii.	Books owned by assessees carrying on business in running lending libraries	100	40
IV	Ships
	Refer to Rule 5 App. I
V	Intangible Assets
	Knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature acquired on or after 1-4-1998		25	25

NOTES:

Notification No. 103/2016 dated 7th November 2016 restricts the highest rate of depreciation to 40%. The depreciation rates are applicable from AY 2018-19 onwards for all taxpayers except for newly set up domestic manufacturing companies (under Section 115BA) where these depreciation rates are applicable from A.Y. 2017-18 onwards. The new rate is made applicable to all the assets (whether old or new) falling in the relevant block of assets.
Where an asset is put to use for less than 180 days in a previous year in which it is purchased, depreciation thereon shall be allowed at 50% of the depreciation allowable in respect of the block of asset comprising such asset.
Buildings include roads, bridges, culverts, wells and tubewells.
Plant has been held to include:
- Movable partitions [Jarrold vs. John Good & Sons Ltd., 40 TC 681 (CA)]
- Sanitary & pipeline fitting [CIT vs. Taj Mahal Hotel, 82 ITR 44 (SC)]
- Ceiling and pedestal fans [CIT vs. Jagadees Chandran & Co., 75 ITR 697 (Mad.); Sundaram Motors Pvt. Ltd. vs. CIT, 71 ITR 587 (Mad.); CIT vs. Tarun Commercial Ltd., 151 ITR 75 (Guj.)]
- Wells [CIT vs. Warner Hindustan Ltd., 117 ITR 15 (AP)]
- Hospital [CIT vs. Dr. B. Venkata Rao 111 Taxman 635 (SC)].However, w.e.f. A.Y. 2004-05, it shall not include buildings, furniture and fittings.
Depreciation on assets acquired on hire purchase basis should be allowed to the hirer where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment [Circular No. 9 (R. Dis. No. 27(4) - IT/43), dated 23rd March 1943].
Depreciation in respect of motor car manufactured outside India acquired on or after 28th February, 1975 or before 1st April, 2001, shall be allowed.
The claim of depreciation is mandatory w.e.f. A.Y. 2002-03 overriding Supreme Court’s decision in CIT vs. Mahendra Mills 109 Taxman 225which held that the depreciation claim is optional.
Total depreciation allowable in the year of succession/amalgamation/demerger to predecessor/amalgamating/demerged co. and successor/amalgamated/resulting co. is to be restricted to depreciation allowable as if succession/amalgamation/demerger had not taken place, and such depreciation is to be apportioned on the basis of number of days usage by each of them.
Depreciation is allowable even on jointly owned assets.
No amortisation benefits under Section 35A and Section 35AB can be claimed in respect of intangible assets.
In respect of depreciable assets employed in power projects, depreciation may be computed under the Straight Line Method on individual assets [Rule 5(1A)] — [Appendix IA]. Alternatively, the undertaking, may at its option, also claim depreciation at the normal rates (Rule 5(1) — Appendix I), subject to the option being exercised prior to the due date of filing the return of income. In the event of sale or disposal of such assets, if the sale consideration.
1. Is less than WDV of such assets – Balance (i.e., WDV – sale consideration) can be claimed as depreciation, provided that such a deficiency is written off in the books.
2. Is in excess of the WDV — Excess (to the extent of the difference between actual cost and WDV will be taxable as Business profit and the balance as Capital Gains).
Additional depreciation @ 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed after 31st March, 2005 by an assessee engaged in the business of manufacture or production of an article or thing shall be allowed on satisfying certain conditions. Such additional depreciation shall also be allowed from A.Y. 2013-14 to an assessee engaged in the business of generation or generation and distribution of power. From A.Y. 2017-18, such additional depreciation is available to an assessee engaged in the business of generation, transmission or distribution of power. Additional depreciation of 35% will be allowed in respect of Plant and Machinery acquired and installed during the period 1st April, 2015 to 31st March, 2020, to an assessee setting up manufacturing operations in notified backward areas of Andhra Pradesh, Telangana, Bihar and West Bengal.
If Plant and Machinery, eligible for additional depreciation is put to use for the purpose of business for less than 180 days in the relevant year, 50% of the additional depreciation shall be allowed in the year in which Plant and Machinery is put to use and balance 50% shall be allowed in the immediately succeeding year. Inserted by Finance Act, 2015, w.e.f. 1st April, 2016.