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:

1. Tangible Assets being buildings, machinery, plant or furniture.
2. 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

NOTES:

1. 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.
2. 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.
3. Buildings include roads, bridges, culverts, wells and tubewells.
4. 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.
5. 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].
6. Depreciation in respect of motor car manufactured outside India acquired on or after 28th February, 1975 or before 1st April, 2001, shall be allowed.
7. 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.
8. 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.
9. Depreciation is allowable even on jointly owned assets.
10. No amortisation benefits under Section 35A and Section 35AB can be claimed in respect of intangible assets.
11. 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).
12. 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.

13. Following persons will not be allowed to claim the benefit of additional depreciation while computing total income for the respective assessment year-
    • Domestic companies opting to pay tax under section 115BAA
    • Newly set up manufacturing domestic companies opting to pay tax under section 115BAB
    • Individuals and HUFs opting to pay tax under the new tax regime under section 115BAC
    • Resident Co – Operative societies opting to pay tax under section 115BAD.