Rates of Depreciation as Per Income Tax Act, 1961

Article provides Rates of Depreciation as per Income Tax Act, 1961 on Building, Plant & Machinery, Furniture & Fittings, Ships & on Intangibles Assets i.e.  Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature for Financial Year 2002-03 to 2019-20 and onwards

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:–

a. Tangible Assets being buildings, machinery, plant or furniture;

b. Intangible Assets being knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature; in respect of which same percentage of depreciations is prescribed.

In case of a domestic company, which has exercised an option under Section 115BA  of the Income-tax Act, 1961 of rate of taxation from 30% to 25%, the depreciation allowance under Section 32(1)(ii) of the Act in respect of any block of assets entitled to more than 40 per cent shall be restricted to 40 per cent on the written down value of such block of assets with effect from 1 April 2016. Notification No. 103/2016, dated 7 November 2016

New Appendix I which provides a table of depreciation rates has been amended. The Notification states that wherever higher rates (i.e. 50, 60, 80 and 100) occurs, the figure ’40’ shall be substituted with effect from 1 April 2017. Notification No. 103/2016, dated 7 November 2016

Rates are also been updated with Notification No. 69/2019-Income Tax Dated 20th September, 2019 by which Depreciation Rate on Motor Car was changed.

Also Read-

• Rates of depreciation as per Companies act 2013

Chart of Rates of depreciation (for income-tax) AS APPLICABLE FROM THE ASSESSMENT YEAR 2003-04 ONWARDS

Notes:

1. “Buildings” include roads, bridges, culverts, wells and tubewells.

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 per cent 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 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. Water treatment system includes system for desalination, demineralisation 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 programme 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 includes 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 motor boat 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.

Depreciation rates for power generating units

(applicable from the assessment year 1998-99

Depreciation under Companies Act, 2013

¹SCHEDULE II²

(See section 123)

USEFUL LIVES TO COMPUTE DEPRECIATION

PART ‘A’

1. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. 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.

2. For the purpose of this Schedule, the term depreciation includes amortisation.

3. Without prejudice to the foregoing provisions of paragraph 1,—

³[(i) The useful life of an asset shall not be longer than the useful life specified in Part ‘C’ and the residual value of an asset shall not be more than five per cent of the original cost of the asset:

Provided that where a company uses a useful life or residual value of the asset which is different from the above limits, justification for the difference shall be disclosed in its financial statement.

(ii) For intangible assets, the provisions of the accounting standards applicable for the time being in force shall apply, except in case of intangible assets (Toll Roads) created under ‘Build, Operate and Transfer’, ‘Build, Own, Operate and Transfer’ or any other form of public private partnership route in case of road projects. Amortisation in such cases may be done as follows:—

(a) Mode of amortisation

Amortisation Amount            
Cost of Intangible Assets (A)

Amortisation Amount =

Actual Revenue for the year (B)                                                           
Projected Revenue from Intangible Asset (till the end of the concession period) (C)

(b) Meaning of particulars are as follows :—

Cost of Intangible Assets (A)=Cost incurred by the company in accordance with the accounting standards.

Actual Revenue for the year (B)=Actual revenue (Toll Charges) received during the accounting year.

Projected Revenue from Intangible Asset (C)=Total projected revenue from the Intangible Assets as provided to the project lender at the time of financial closure/agreement.

The amortisation amount or rate should ensure that the whole of the cost of the intangible asset is amortised over the concession period.

Revenue shall be reviewed at the end of each financial year and projected revenue shall be adjusted to reflect such changes, if any, in the estimates as will lead to the actual collection at the end of the concession period.

(c) Example:—

Assuming that the Total revenue to be generated out of Intangible Assets over the period would be Rs. 600 Crores, in the following manner:—

‘*’ will be actual at the end of financial year.

Based on this the charge for first year would be Rs. 4.16 Crore (approximately) (i.e. Rs. 5/Rs. 600 × Rs. 500 Crores) which would be charged to profit and loss and 0.83% (i.e. Rs. 4.16 Crore/Rs. 500 Crore × 100) is the amortisation rate for the first year.

Where a company arrives at the amortisation amount in respect of the said Intangible Assets in accordance with any method as per the applicable Accounting Standards, it shall disclose the same.]

PART ‘B’

4. The useful life or residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirements of this Schedule.

PART ‘C’

5. Subject to Parts A and B above, the following are the useful lives of various tangible assets:

Notes.—

1. “Factory buildings” does not include offices, godowns, staff quarters.

2. Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.

3. The following information shall also be disclosed in the accounts, namely:—

(i)  depreciation methods used; and

(ii)  the useful lives of the assets for computing depreciation, if they are different from the life specified in the Schedule.

4. Useful life specified in Part C of the Schedule is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.

5.  ⁵[***]

6. The useful lives of assets working on shift basis have been specified in the Schedule based on their single shift working. Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for double shift, the depreciation will increase by 50% for that period and in case of the triple shift the depreciation shall be calculated on the basis of 100% for that period.

7.  From the date this Schedule comes into effect, the carrying amount of the asset as on that date—

(a) shall be depreciated over the remaining useful life of the asset as per this Schedule;

(b)  after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil.

8. “Continuous process plant” means a plant which is required and designed to operate for twenty-four hours a day.

_______________________

1. Corresponds to Schedule XIV of the 1956 Act.

2. Enforced with effect from 1-4-2014.

3. Substituted for clauses (i) to (iii) vide Notification No. GSR 237(E) [F. No. 17/60/2012-CL-V], dated 31-3-2014, w.e.f. 1-4-2014. Prior to their substitution, clauses (i) to (iii) read as under :

“(i) In case of such class of companies, as may be prescribed and whose financial statements comply with the accounting standards prescribed for such class of companies under section 133 the useful life of an asset shall not normally be different from the useful life and the residual value shall not be different from that as indicated in Part C, provided that if such a company uses a useful life or residual value which is different from the useful life or residual value indicated therein, it shall disclose the justification for the same.

(ii) In respect of other companies the useful life of an asset shall not be longer than the useful life and the residual value shall not be higher than that prescribed in Part C.

(iii) For intangible assets, the provisions of the Accounting Standards mentioned under sub-para (i) or (ii), as applicable, shall apply.”

4. Substituted vide Notification No. GSR 237(E) [F. No. 17/60/2012-CL-V], dated 31-3-2014, w.e.f. 1-4-2014. Prior to its substitution, clause (b) read as under :

“(b) Continuous process plant for which no special rate has been prescribed under (ii) below [NESD]

8 Years”

5. Omitted vide Notification No. GSR 237(E) [F. No. 17/60/2012-CL-V], dated 31-3-2014, w.e.f. 1-4-2014. Prior to its omission, Paragraph 5 read as under :

“5. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Ordinarily, the residual value of an asset is often insignificant but it should generally be not more than 5% of the original cost of the asset.”