Depreciation under the Income-tax Act, 2025 is allowed by section 33 at a percentage of the written down value of the block as prescribed by the Rules, halved where an asset is used for under 180 days, with 20% additional depreciation for manufacturers.
Depreciation rates are not in Schedule II. Schedule II is read with section 11 and lists income not to be included in total income. Depreciation is allowed by section 33 at rates prescribed by the Rules, with written down value defined in section 41.
Where depreciation actually comes from
Under the Income-tax Act, 1961 the depreciation rates were in Appendix I to the Income-tax Rules, 1962 — not in a Schedule to the Act. The Income-tax Act, 2025 keeps that architecture: section 33 allows the deduction and the Rules prescribe the percentages.
The number to remember is that depreciation is section 33, not section 32. Section 32 of the new Act is 'Other deductions', drawn from section 36 of the old Act. Citing section 32 for depreciation under the new Act is wrong.
The written down value on which the percentage is applied comes from section 41, which carries the block formula [(A−D)+B−C]−E. Actual cost is section 39.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026 because of the repeal and savings provision in section 536. The Schedule contents described here are taken from the Act as enacted, incorporating the corrigenda notified in the Gazette on 3 September 2025.
Where each provision actually sits
| Topic | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Depreciation allowance | Section 32 | Section 33 |
| Partly used assets | Section 38(2) | Section 33(3)(b) |
| 50% where used under 180 days | Section 32(1), second proviso | Section 33(4) |
| Additional depreciation | Section 32(1)(iia) | Section 33(8) and (9) |
| Unabsorbed depreciation | Section 32(2) | Section 33(11) |
| Actual cost | Section 43(1) | Section 39 |
| Written down value | Section 43(6) | Section 41 |
| Balancing charge | Section 41(2) | Section 38(1)(b) |
How the deduction is computed
Section 33(1) — what qualifies
Depreciation is allowed on tangible assets — buildings, machinery, plant or furniture — and on intangible assets being know-how, patents, copyrights, trademarks, licences, franchises or similar rights acquired on or after 1 April 1998, owned wholly or partly by the assessee and used wholly and exclusively for the business. Goodwill is expressly excluded, both here and in section 33(12)(a)(ii).
Section 33(3)(a) — the rate comes from the Rules
For a block of assets, the deduction is such percentage of the written down value as may be prescribed. The percentage therefore lives in the Rules made under the Act, exactly as it did under the 1961 regime. Section 33(2) provides a separate actual cost basis for undertakings engaged in generation, or generation and distribution, of power.
Section 33(4) — the 180-day rule
The deduction is restricted to 50% of the prescribed rate where the asset is both acquired during the tax year and put to use for less than 180 days in that year. Both conditions must be met — an asset bought earlier but used briefly this year is unaffected.
Sections 33(8) and (9) — additional depreciation
An assessee engaged in the manufacture or production of any article or thing, or in the generation, transmission or distribution of power, gets additional depreciation of 20% of actual cost on new machinery or plant, reduced to 10% where it is put to use for under 180 days, with the remaining 10% allowed in the next tax year. Excluded are previously used assets, plant in office or residential premises including a guest house, office appliances and road transport vehicles.
Section 41 — the written down value formula
For a block, written down value is [(A−D)+B−C]−E: A is the opening written down value, D the depreciation actually allowed in the preceding year, B additions during the year, C moneys payable plus scrap on disposals — capped so that C cannot exceed (A−D)+B — and E the slump sale adjustment. A block therefore never goes negative; excess realisations become a balancing charge under section 38(1)(b).
Section 33(7) and (11) — not optional, and carried forward
The section applies whether or not the assessee has claimed depreciation, so written down value cannot be preserved by declining to claim. Where profits before depreciation fall short, sub-section (11) limits the deduction to available profits, allows none in a loss year, and adds the unallowed amount to the next year's allowable depreciation.
Worked example
A manufacturing company buys two machines in tax year 2026-27. Assume the prescribed rate for the block is 15%.
| Machine A | Machine B | |
|---|---|---|
| Actual cost | ₹80,00,000 | ₹50,00,000 |
| Days used in the year | More than 180 | Less than 180 |
| Normal depreciation | 15% = ₹12,00,000 | 50% of 15% = 7.5% = ₹3,75,000 |
| Additional depreciation | 20% = ₹16,00,000 | 10% = ₹5,00,000 |
| Balance additional depreciation in 2027-28 | — | ₹5,00,000 |
Total depreciation in 2026-27 is ₹36,75,000. Had the company bought office furniture or a delivery van instead, additional depreciation would not be available at all — section 33(8)(d) excludes office appliances and road transport vehicles.
Compliance checklist
- Cite section 33 for depreciation, not section 32; section 32 of the new Act is 'Other deductions'.
- Take the rate from the Rules made under the Act; no Schedule carries it.
- Record the date each asset was put to use for the 180-day test in section 33(4).
- Test additional depreciation against every condition in section 33(8), and carry the balance 10% to the next year.
- Compute written down value with the section 41 formula, capping C at (A−D)+B.
- Recognise a balancing charge under section 38(1)(b) where realisations exceed the block.
- Do not capitalise goodwill into a depreciable block.
Common mistakes
- Looking for a depreciation rate schedule in the Act; the rates are prescribed by the Rules.
- Citing section 32 of the new Act for depreciation.
- Applying the 50% restriction to an asset acquired in an earlier year.
- Claiming additional depreciation on office appliances or road transport vehicles.
- Skipping depreciation in a loss year to preserve written down value, which section 33(7) does not permit.
All sixteen Schedules of the Income-tax Act, 2025
Because the numbering is widely misquoted, the full list is reproduced below from the Act as enacted. Note that Schedules II to VII are all exemption lists, split by who is claiming rather than by what the income is.
| Schedule | Read with | Subject as enacted |
|---|---|---|
| I | section 9(12) | Conditions for certain activities not to constitute business connection in India |
| II | section 11 | Income not to be included in total income |
| III | section 11 | Income not to be included in total income of eligible persons |
| IV | section 11 | Income not to be included in total income of eligible non-residents, foreign companies and other such persons |
| V | section 11 | Income not to be included in total income of certain eligible persons including investment funds, business trusts and their unit holders |
| VI | section 11 | Income not to be included in total income of certain eligible persons in an International Financial Services Centre or having income therefrom |
| VII | section 11 | Persons exempt from tax |
| VIII | section 12 | Income not to be included in the total income of political parties and electoral trusts |
| IX | section 48 | Deduction for tea, coffee and rubber development accounts |
| X | section 49 | Deduction for Site Restoration Fund |
| XI | section 2(91) | Recognised provident funds, approved superannuation funds and approved gratuity funds |
| XII | section 51 | Minerals, and groups of associated minerals |
| XIII | section 45(2) | List of articles or things |
| XIV | section 55 | Insurance business |
| XV | section 123 | Deduction for life insurance premia, contribution to provident fund, subscription to certain equity shares, etc. |
| XVI | section 350 | Permitted modes of investment or deposits by a registered non-profit organisation |
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.