Depreciation Rules and Block 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 a critical deduction for businesses computing taxable income under the Income Tax Act 2025. Unlike accounting depreciation, which may use straight-line method, ITA 2025 mandates the Written Down Value (WDV) method on the block of assets concept. Understanding these rules is essential for accurate tax computation from Tax Year 2026-27.
Block of Assets: The Core Concept
Under ITA 2025, assets are not depreciated individually. Instead, all assets of the same class sharing the same depreciation rate are grouped into a block. The WDV of the block at the beginning of the year, plus additions during the year, minus sales/transfers during the year, gives the net WDV on which depreciation is calculated.
Standard Depreciation Rates
| Asset Class | Rate |
|---|---|
| Residential buildings | 5% |
| Non-residential buildings (non-temporary) | 10% |
| Temporary wooden structures | 40% |
| Furniture and fittings | 10% |
| Plant and machinery (general) | 15% |
| Pollution control equipment | 40% |
| Computers and peripherals/software | 40% |
| Intangible assets (patents, trademarks, know-how) | 25% |
| Vehicles (other than heavy) | 15% |
| Ships | 20% |
| Goodwill | Nil (abolished) |
50% Restriction in Year of Acquisition
If any asset is put to use for less than 180 days in the year of acquisition, only 50% of the normal depreciation is allowed on that asset in the first year. The remaining depreciation is available from the next Tax Year onwards.
Additional Depreciation for Manufacturing Units
New plant and machinery acquired by manufacturing companies (not second-hand) is eligible for additional depreciation of 20% in the first year (over and above normal depreciation). This additional depreciation is also subject to the 50% restriction if the asset is used for less than 180 days.
WDV Computation Example
Example: A company has a P&M block (15% rate).
- Opening WDV: Rs. 10,00,000
- Add: New machinery purchased July 2026 for Rs. 4,00,000 (used <180 days)
- Less: Machinery sold for Rs. 2,00,000
- Net WDV for depreciation: Rs. 12,00,000
- Normal depreciation (15%): Rs. 1,80,000
- 50% of normal on new asset (15% × Rs. 4L × 50%): Rs. 30,000 already included
- Additional depreciation on new asset (20% × Rs. 4L × 50%): Rs. 40,000
- Total depreciation: Rs. 1,80,000 + Rs. 40,000 = Rs. 2,20,000
Terminal Depreciation and Capital Gains on Block Dissolution
When all assets in a block are sold and the sale proceeds exceed the WDV, no depreciation is available and a short-term capital gain (charged as business income) arises. If sale proceeds are less than WDV after all assets in the block are sold, a terminal depreciation (business loss) is allowed in that year.
Unabsorbed Depreciation
Depreciation not fully absorbed against business income in a Tax Year becomes "unabsorbed depreciation." Unlike other business losses (8-year cap), unabsorbed depreciation can be carried forward indefinitely and set off against any head of income in subsequent years.
Assets Not Eligible for Depreciation
- Land (not depreciable)
- Goodwill (abolished under ITA 2025)
- Assets used exclusively for non-business/personal purposes
- Assets not "put to use" during the Tax Year
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Key Facts About Depreciation Rules and Block
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is the WDV method of depreciation?
WDV (Written Down Value) method applies the depreciation rate on the opening WDV of the block (not the original cost), resulting in reducing depreciation each year.
Is goodwill depreciable under ITA 2025?
No. Goodwill was made non-depreciable by an amendment, and ITA 2025 continues this — goodwill has a Nil depreciation rate.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Depreciation Rules and Block: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.
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Why This Matters
Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble. It is always wise to maintain proper records and documentation so that any future scrutiny can be handled smoothly.