Depreciation as per Income Tax Act (2026-27): Rates Chart, Section 32 & Examples

Depreciation under the Income Tax Act is a powerful tax‑saving tool for businesses and professionals. Unlike the Companies Act, IT mandates the WDV method and groups assets into Blocks of Assets with fixed rates. This guide covers all rates, a searchable chart, real‑life examples, common mistakes, and the latest amendments – explained simply.

Common Depreciation Problems & Solutions under Income Tax Act (Section 32)

Quick Answer: If an asset is used for less than 180 days, only 50% depreciation is allowed. New plant & machinery can claim 20% additional depreciation under Section 32(1)(iia). If no asset remains in the block, capital gain or terminal depreciation applies.

Many taxpayers make mistakes while calculating depreciation under Income Tax Act. Here are the most common issues with correct treatment:

📘 How to Calculate Depreciation (WDV Method) – Step by Step

🔄 Latest Amendments (AY 2026-27) – What’s New?

Common Depreciation Mistakes (and How to Avoid Them)

Quick Insight: Most depreciation errors happen due to ignoring the 180-day rule, additional depreciation eligibility, and incorrect block adjustments. Avoiding these mistakes can significantly reduce tax risks.

Depreciation Rates Chart as per Income Tax Act (WDV Table)

Depreciation Rates Chart as per Income Tax Act: The table below provides the latest WDV depreciation rates for various blocks of assets as per Appendix I of Income Tax Rules. It includes buildings, plant & machinery, computers, vehicles, and other assets with applicable rates and conditions. You can search any asset to instantly find its depreciation rate.

💡 Tip: Press Ctrl + F or use search box to instantly find any asset.

⚡ Additional Depreciation (Section 32(1)(iia))

New plant & machinery (excluding ships, aircraft, vehicles, office appliances, and second-hand assets) acquired & installed after 31st March 2005 and used in manufacturing or production is eligible for additional depreciation of 20%. For assets used <180 days, additional depreciation is restricted to 10% in the year of acquisition.

📌 Extra Shift Depreciation (Except NESD assets)

For double shift, depreciation increases by 50% of normal rate for that period. For triple shift, increases by 100%. Continuous process plant and assets marked NESD are not eligible.

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Depreciation vs Amortisation – Detailed Comparison

Depreciation and amortisation are both methods of allocating the cost of assets over their useful life. However, they apply to different types of assets and follow different practical treatments under the Income Tax Act.

Set-off and Carry Forward of Unabsorbed Depreciation

Unabsorbed depreciation arises when the depreciation amount exceeds the business income in a financial year. Unlike business losses, it has special benefits under the Income Tax Act.

• Unlimited carry forward: It can be carried forward indefinitely (no time limit).
• Set-off flexibility: It can be adjusted against any head of income except salary.
• Treated as current year depreciation: In subsequent years, it is treated as current depreciation, making set-off easier.

This makes depreciation one of the most powerful tax planning tools available to businesses.

Depreciation in Case of Sale or Closure of Business

When assets are sold or the business is discontinued, special rules apply under the block of assets concept.

• If entire block is sold → compare sale value with WDV.
• If sale value > WDV → Short-Term Capital Gain (STCG).
• If sale value < WDV → Terminal depreciation (allowed as deduction).

Partial sale does not affect depreciation — it continues on remaining block.

“Put to Use” Condition – Detailed Explanation

Depreciation is allowed only when an asset is “put to use” for business or profession during the year.

• Active use: Asset is actually used in business operations.
• Passive use: Courts have allowed depreciation where asset is ready for use (even if not actively used).
• Timing impact: If used for less than 180 days → only 50% depreciation allowed.

This condition is crucial in tax planning, especially for assets purchased near year-end.

Cases Where Depreciation is Not Allowed

Depreciation is not allowed in the following situations:

• Assets used for personal purposes
• Goodwill (specifically excluded under Section 32)
• Land (no wear and tear)
• Assets not put to use during the year
• Assets not owned by the taxpayer (except specific lease cases)

Incorrect claims may lead to disallowance and penalties.

Important Case Laws on Depreciation

Judicial rulings play a key role in interpreting depreciation provisions:

• Goodwill case: Supreme Court ruled that goodwill is not eligible for depreciation.
• Passive use concept: Courts have allowed depreciation even if asset was kept ready for use.
• Block of assets concept: Courts have consistently upheld depreciation on block basis rather than individual asset basis.

These rulings help in understanding practical application beyond the law.

Depreciation Formula (WDV Method) – Explained

Depreciation = (Opening WDV + Additions – Sale Value) × Rate

• Opening WDV: Last year’s closing value
• Additions: Assets purchased during the year
• Sale value: Deducted from block
• Rate: As per Income Tax Rules

If assets are used for less than 180 days, depreciation is restricted to 50% on such additions.

Pro Tips to Maximize Depreciation Benefits

• Purchase assets before 30th September to claim full depreciation
• Always claim depreciation even in loss years
• Use additional depreciation strategically for tax planning
• Maintain asset register for audit safety

Depreciation under Income Tax Act – FAQs (Section 32 Explained)