Depreciation rate refers to the percentage by which an asset’s value reduces yearly due to usage, wear and tear, or obsolescence. It helps businesses account for the decline in value of their fixed assets over time.

Let’s understand this using Ravi’s example. Ravi buys machinery for his workshop worth ₹5,00,000. The machinery depreciates at a rate of 10% annually. This means the machine’s value will decrease by 10% annually, and the reduced value will be shown in his accounts.

Here’s how the depreciation looks over 3 years:

Year	Opening Value (₹)	Depreciation @10% (₹)	Closing Value (₹
1	5,00,000	50,000	4,50,000
2	4,50,000	45,000	4,05,000
3	4,05,000	40,500	3,64,500

This table shows how depreciation gradually lowers the asset’s value, helping Ravi estimate future worth and plan replacements wisely.

Understanding the Concept of Block of Assets

Under the Income Tax Act, depreciation is not calculated on each asset. Instead, it is applied to a block of assets. A block of assets is a group of fixed assets that fall under the same category and carry the same rate of depreciation.

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These assets are divided into two types:

Tangible assets like buildings, machinery, furniture, and plants
Intangible assets such as patents, copyrights, licences, trademarks, franchises, or any business rights

To form a block, the assets must have a similar nature, use, and life span. Also, they must belong to the same depreciation rate category.

Once grouped, these assets lose their identity. For tax purposes, only the total written-down value (WDV) of the block is used to calculate depreciation. This simplifies the process and ensures consistency in the treatment of similar types of assets.

Essential Conditions to Claim Depreciation under the Income Tax Act

To claim depreciation under the Income Tax Act, certain key conditions must be met, these are:

Section 32, Income-tax Act, 1961

Depreciation is claimed on the block-of-assets basis and reduces the Written Down Value (WDV) for future years.

Section 32 (ownership requirement), Income-tax Act, 1961

Only assets owned (fully or partly) by the taxpayer qualify for depreciation. Lessees or others without ownership generally cannot claim depreciation.

Section 32 (business use), Income-tax Act, 1961

Depreciation is allowed only for the portion of the asset used for business or profession. If an asset is partly for personal use, depreciation must be apportioned to the business use.

Section 38, Income-tax Act, 1961

When premises or assets are not exclusively used for business, Section 38 allows the Assessing Officer to determine and limit deductions (including depreciation) to the fair business proportion.

Finance Act, 2021 (amendment), Income-tax Act, 1961

Goodwill was excluded from the block of assets and is no longer eligible for depreciation; land has never been depreciable. This amendment applies from FY 2020–21 / AY 2021–22.

Provision since AY 2002–03 (deemed allowance)

From Assessment Year 2002–03 onward, depreciation is treated as deemed allowed for WDV computation even if not claimed in the profit & loss account; the WDV is adjusted accordingly.

Let’s understand this with an example:

Example:

Ravi and Meera jointly own office furniture worth ₹1,00,000 (50% each). It’s used 70% for business.

Particulars	Amount (₹)
Asset Cost (each)	50,000
Business Use (70%)	35,000
Depreciation @10% on ₹35,000	3,500

So, both Ravi and Meera can claim ₹3,500 each as depreciation.

Meaning of Written Down Value (WDV) of Assets

Under Section 32(1) of the Income Tax Act, depreciation is calculated on the Written Down Value (WDV) of an asset at a prescribed rate. WDV refers to the value of an asset after deducting the depreciation already claimed. If you bought the asset in the current year, its actual cost becomes the WDV. But if you purchased it in an earlier year, then WDV is the actual cost minus the depreciation you have already claimed under the Act.

Depreciation Amount Allowed

Situation	Depreciation Treatment
General Rule	Depreciation is calculated using the WDV method as per the rates in Appendix 1.
Power Sector Companies	Companies involved in power generation or both generation and distribution can choose between WDV and Straight-Line methods. The option must be exercised before the return filing due date.
Amalgamation or Demerger	Depreciation is shared between the old and new companies based on asset usage. It is calculated as if no amalgamation or demerger occurred.
Finance Lease (AS-19)	The lessee must capitalise the leased asset in their books. Lessee can claim depreciation, as they hold ownership rights under the lease agreement.

Depreciation Rates for FY 2025–26 (Most Common Assets)

Asset Class	Asset Type	Depreciation Rate
Building	Residential buildings (not including boarding houses and hotels)	5%
Building	Boarding houses and hotels	10%
Building	Temporary constructions like wooden structures	40%
Furniture	Furniture and fittings, including electrical fittings	10%
Plant and Machinery	Motor cars (not used for hire business)	15%
Plant and Machinery	Motor cars (not used for hire), bought between 23 Aug 2019 and 31 Mar 2020 and used before 1 Apr 2020	30%
Plant and Machinery	Lorries, taxis, or motor buses used in a hire business	30%
Plant and Machinery	Lorries, taxis, or motor buses (used in hire), bought between 23 Aug 2019 and 31 Mar 2020 and used before 1 Apr 2020	45%
Plant and Machinery	Computers and computer software	40%
Plant and Machinery	Books (annual publications) owned by professionals	40%
Plant and Machinery	Books (not annual publications) owned by professionals	40%
Plant and Machinery	Books owned by businesses running lending libraries	40%
Intangible Assets	Franchise, trademarks, patents, licences, copyrights, know-how, or similar commercial/business rights	25%

Depreciation Rates Chart as per the Income Tax Act (FY 2025–26)

The Income Tax Act sets fixed depreciation rates for different types of assets. These rates help reduce taxable profits by accounting for wear and tear. Taxpayers must apply the correct rate based on the asset’s nature and usage during the year.

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Part A – Tangible Assets

1. Buildings

Asset Description	Rate
Residential buildings (excluding boarding houses and hotels)	5%
Other buildings not covered in the above table ( 1 and 3)	10%
Buildings bought on/after 1 Sep 2002 for installing plant/machinery in water supply or treatment infrastructure projects	40%
Temporary wooden or similar structures	40%

2. Furniture and Fittings

Asset Description	Rate
Furniture and fittings, including electrical fittings	10%

3. Plant and Machinery

Asset Description	Rate
General plant and machinery	15%
Motor cars not used for hire business (bought/used on or after 1 Apr 1990)	15%
Motor cars (not for hire) bought between 23 Aug 2019 and 31 Mar 2020 and used before 1 Apr 2020	30%
Aeroplanes and aero engines	40%
Vehicles like taxis, lorries, and buses are used in the hire business	30%
Same vehicles bought between 23 Aug 2019 and 31 Mar 2020 and used before 1 Apr 2020	45%
Commercial vehicles bought in specific time frames for business or the replacement of old vehicles	40%
Plastic and rubber moulds	30%
Air pollution control equipment (like scrubbers, dust collectors, ash handlers)	40%
Water pollution control equipment (aerators, filters, bio-reactors, methane digesters, etc.)	40%
Solid waste recovery and recycling systems	40%
Semiconductor manufacturing equipment (ICs, diodes, transistors, etc.)	30%
Life-saving medical equipment (MRI, ventilators, gamma knife, surgical lasers, etc.)	40%
Plastic or glass containers used as refills	40%
Computers and computer software	40%
Textile machinery under TUFS bought between 1 Apr 2001 and 31 Mar 2004 and used before 1 Apr 2004	40%
Machinery installed on or after 1 September 2002 for water treatment projects under infrastructure development	40%
Items like wooden match frames, salt pans, quarries, sugar rollers, flour mills, etc.	40%
Energy-saving devices (efficient boilers, heat recovery units, fuel systems, etc.)	40%
Renewable energy devices (solar heaters, cookers, pumps, windmills, etc.)	40%
Books owned by professionals or lending libraries	40%

4. Ships

Asset Description	Rate
Ocean-going ships, tugs, dredgers, wooden-hulled vessels	20%
Inland water vessels	20%
Speedboats operating on inland waters	20%

Part B – Intangible Assets

Asset Description	Rate
Franchise, trademarks, patents, licences, copyrights, know-how, or other similar business rights	25%

Conclusion

For the financial year 2025–26, the Income Tax Act allows businesses and professionals to claim depreciation on various assets at specific rates. These rates depend on the type of asset and how it is used.

Tangible assets like buildings, machinery, vehicles, and furniture, as well as intangible assets such as trademarks and licences, all have clearly defined depreciation rates. The government uses these rates to help calculate the decrease in asset value over time, which helps reduce taxable income.

Taxpayers must apply the correct rate as per the rules and ensure the assets are used for business or professional purposes.

FAQ’s

1. Who can claim depreciation under the Income Tax Act?
Any taxpayer who owns and uses an asset for business or professional purposes can claim depreciation.

2. Which method is commonly used to calculate depreciation?
The Income Tax Act mainly uses the Written Down Value (WDV) method to calculate depreciation.

3. What is the depreciation rate for computers in FY 2025–26?
The rate for computers and computer software is 40%.

4. Can I claim depreciation on intangible assets?
Yes, you can claim 25% depreciation on intangible assets like licences, patents, and trademarks.

5. Is depreciation available for temporary structures?
Yes, you can claim 40% depreciation on temporary wooden or similar structures.

Other Related Pages
Section 10(10D) of the Income Tax Act	Section 69 of the Income Tax Act	Section 147 of the Income Tax Act	Depreciation Rates FY 2025–26 as per Income Tax Act
Income Tax Slab for Female Taxpayers in FY 2025–26	Section 37 of the Income Tax Act	Section 10AA of the Income Tax Act	What is Toll Tax
Gratuity Tax Exemption under the Income Tax Act	GVMC Water Tax	National Pension Scheme Tax Benefits	Section 28 of the Income Tax Act
Section 234B of the Income Tax Act	Section 92E of the Income Tax Act	Section 115BAA of the Income Tax Act	Section 10(26) of the Income Tax Act