Depreciation Methods under Companies explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Depreciation is charged differently under the Companies Act and the Income-tax Act. Here is how the two methods differ.
Under the Companies Act
- Based on the useful life of the asset (Schedule II)
- Can use straight-line (SLM) or written-down value (WDV)
- Computed asset-wise for the financial statements
Under the Income-tax Act
- Based on prescribed block-of-assets rates
- Uses the WDV method on blocks of assets
- Additional depreciation available for certain new plant & machinery
Why they differ
The difference between book and tax depreciation creates deferred tax, reconciled in the accounts.
Frequently Asked Questions
How is depreciation charged under the Companies Act?
Based on the useful life of assets (Schedule II), using SLM or WDV.
How is depreciation charged under income tax?
On blocks of assets at prescribed rates using the WDV method.
Why do book and tax depreciation differ?
Different bases (useful life vs block rates), which creates deferred tax.
What is additional depreciation?
Extra depreciation on certain new plant & machinery under income tax.
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