Depreciation Under Income Tax Act 2025: Rates, Block of Assets and Written Down Value

Depreciation is the deduction a business or professional gets for the wear and tear of buildings, machinery, plant, furniture and certain intangible assets. Under the Income-tax Act, 2025 it is allowed by section 33, on the written down value (WDV) of a block of assets, at the percentage fixed in Appendix I to the Income-tax Rules, 2026. Common rates run from 5% for residential buildings to 40% for computers (a few specialised entries differ), and the WDV itself is computed under section 41.

This guide explains what a block of assets is, which rate applies to which asset, how the WDV formula works, when only half the rate is allowed, and what happens when profit is too small to absorb the depreciation. Every figure comes from the Act (as amended by the Finance Act, 2026) and the Rules, with the section or rule number beside it. Last reviewed against that text on 10 November 2026. This is information, not tax advice.

Who can claim depreciation, and on which assets?

Section 33(1) allows depreciation on assets that are owned wholly or partly by the assessee and used wholly and exclusively for the business or profession. The assets are listed in section 33(12)(a):

• Tangible: buildings, machinery, plant and furniture.
• Intangible: know-how, patents, copyrights, trademarks, licences, franchises and similar business or commercial rights. These must be acquired on or after 1 April 1998, and goodwill of a business or profession is excluded (section 33(1)(b)).

Section 33(7) adds a point that is easy to miss: the section applies whether or not you claim the deduction in your return. Depreciation is not optional, and it reduces the WDV every year even if you leave it out of the computation.

What is a "block of assets"?

Under section 33(3)(a), depreciation is not worked out asset by asset. Assets of the same class and rate are pooled into a block, and the percentage is applied to the written down value of the whole block. Each row of Appendix I, Part A or Part B, is a block. Rule 25(1) says the rate applies to the WDV of the block "as are used for the purposes of the business or profession of the assessee at any time during the tax year".

A practical result: when one machine in a block is sold, the block continues, and its WDV simply falls by the sale money (the "C" in the formula below).

What are the depreciation rates for 2026-27?

Rule 25(1) read with Appendix I, Part A (tangible) and Part B (intangible). The table below shows the common blocks. Appendix I has many more specialised entries (pollution control equipment, energy saving devices, life saving medical equipment and others), most at 40%, so check the Appendix for an unusual asset.

Block of assets (Appendix I)	Rate on WDV
Buildings used mainly for residential purposes, except hotels and boarding houses (Part A, I.1)	5%
Other buildings, not residential and not in I.3 (Part A, I.2)	10%
Purely temporary erections such as wooden structures (Part A, I.4)	40%
Furniture and fittings, including electrical fittings (Part A, II)	10%
General machinery and plant (Part A, III.1)	15%
Motor cars not used on hire, acquired on or after 1 April 1990 (Part A, III.2(i))	15%
Motor buses, lorries and taxis used in a business of running them on hire (Part A, III.3(ii))	30%
Computers including computer software (Part A, III.5)	40%
Books owned by a professional: annual publications and other books (Part A, III.8(i))	40%
Ships: ocean-going and inland vessels (Part A, IV)	20%
Know-how, patents, copyrights, trademarks, licences, franchises and similar rights (Part B)	25%

Three notes from Appendix I matter in daily use. A building counts as residential if at least 66 2/3% of its built-up floor area is used for residence (Note 2). "Buildings" include roads, bridges, culverts, wells and tubewells (Note 1). "Electrical fittings" include wiring, switches, sockets and fans (Note 5). Some motor car and commercial vehicle entries carry different rates for purchases in specific windows around 2019 and 2020, so look at the Appendix for those dates.

Is there a 40% ceiling on depreciation for some taxpayers?

Yes. Under rule 25(2), the depreciation on a block cannot exceed 40% of its WDV for three kinds of persons, if they meet the conditions: a domestic company that has exercised an option under section 199(3), 200(5) or 201(2); an individual, HUF, AOP, BOI or artificial juridical person whose income is chargeable to tax under section 202(1); and a resident co-operative society that has exercised an option under section 203(5) or 204(2). Check the section for your own option before relying on any rate above 40% in a special entry.

How is written down value calculated under section 41?

Section 41(1)(c) gives the formula for a block:

WDV = [(A − D) + B − C] − E

Letter	Meaning (section 41(1)(c))
A	WDV of the block in the immediately preceding tax year
D	Depreciation actually allowed on the block for that preceding tax year
B	Actual cost of assets in the block acquired during the tax year
C	Money payable (plus scrap value, if any) for assets sold, transferred, demolished, destroyed or discarded during the tax year. C cannot exceed (A − D) + B
E	Only for a slump sale: the actual cost of the asset reduced by depreciation as set out in section 41(1)(c)(E)(i) and (ii)

For an asset acquired in the tax year, WDV is simply its actual cost (section 41(1)(a)). For an asset bought earlier, it is actual cost less the depreciation actually allowed under this Act or the Income-tax Act, 1961 (section 41(1)(b)).

Worked example 1: a block with a purchase (tax year 2026-27)

Ravi runs a packaging unit. His general machinery and plant block is at 15%. Assumptions: the block's WDV for 2025-26 (A) was Rs 10,00,000, depreciation allowed for 2025-26 (D) was Rs 1,50,000, he buys a new machine for Rs 4,00,000 on 1 August 2026 and starts using it the same day, and nothing is sold.

Step	Working	Rs
A − D	10,00,000 − 1,50,000	8,50,000
+ B	Machine bought	4,00,000
− C	No sale	0
WDV for 2026-27	8,50,000 + 4,00,000	12,50,000
Depreciation at 15%	12,50,000 x 15%	1,87,500
Opening WDV for 2027-28	12,50,000 − 1,87,500	10,62,500

The machine was used for 243 days (1 August 2026 to 31 March 2027), which is more than 180, so the full rate applies.

When is only half the depreciation rate allowed?

Section 33(4) restricts the deduction to 50% of the prescribed rate for an asset that is both (a) acquired during the tax year and (b) put to use for the business for less than 180 days in that year.

Worked example 2: a laptop bought late in the year (tax year 2026-27)

Meena is a practising professional. Her computers block is at 40%. Assumptions: the block's WDV after the previous year's depreciation (A − D) is Rs 2,00,000, and she buys a laptop for Rs 1,00,000 on 10 December 2026 and uses it from that day. From 10 December 2026 to 31 March 2027 is 112 days (22 + 31 + 28 + 31), which is less than 180, so section 33(4) applies to the laptop.

Item	Working	Rs
WDV for 2026-27	2,00,000 + 1,00,000	3,00,000
Depreciation on opening WDV, full rate	2,00,000 x 40%	80,000
Depreciation on the laptop, half rate (20%)	1,00,000 x 20%	20,000
Total depreciation	80,000 + 20,000	1,00,000
Opening WDV for 2027-28	3,00,000 − 1,00,000	2,00,000

The Act does not spell out a block-level worked method for the half rate. Splitting the block into the opening part and the late addition, as above, is the usual reading of section 33(4), but confirm it against the return utility for your case.

Worked example 3: selling a machine from the block (tax year 2026-27)

Assumptions: the same 15% machinery block has (A − D) of Rs 5,00,000, nothing is bought, and one old machine is sold for Rs 60,000 during the year.

Step	Working	Rs
(A − D) + B	5,00,000 + 0	5,00,000
− C	Sale money	60,000
WDV for 2026-27	5,00,000 − 60,000	4,40,000
Depreciation at 15%	4,40,000 x 15%	66,000
Opening WDV for 2027-28	4,40,000 − 66,000	3,74,000

The sale reduces the block rather than creating a separate gain or loss in this computation. What happens when the sale money is larger than the block, or the whole block is sold, is covered in the next section. The full guide to capital gains on depreciable assets goes further.

What if I sell more than the block is worth, or sell every asset in it?

Section 74 overrides the normal capital gains rules for a block on which depreciation has been allowed. Two cases matter:

• Sale money exceeds the block (section 74(2)). If the full value of consideration for assets transferred in the year is more than the total of (a) transfer expenses, (b) the block's WDV at the start of the year and (c) the actual cost of assets added during the year, the excess is deemed short-term capital gains. The block is then left with nothing to depreciate.
• The block ceases to exist (section 74(3)). If every asset in the block is transferred in the year, the block's cost of acquisition is its opening WDV plus the actual cost of assets bought during the year, and the income from the transfer is deemed short-term capital gains. No depreciation is computed on an empty block.

Case (tax year 2026-27, 15% block)	Working	Rs
Opening WDV (A − D)	Given	3,00,000
Bought during the year (B)	Given	1,00,000
Sold during the year, one asset (C)	Given; transfer expenses assumed nil	6,00,000
Deemed short-term capital gain, section 74(2)	6,00,000 − (3,00,000 + 1,00,000)	2,00,000
Block WDV after the sale	Nothing left to depreciate	0

Note the difference from the formula in section 41: there C is capped at (A − D) + B so WDV never goes below zero, and the excess is what section 74 taxes.

What if profit is too small to absorb the depreciation?

Section 33(11) limits the deduction to the profits available. If profits before depreciation are less than the depreciation, the deduction is allowed up to the profit. If there is a loss, no depreciation is allowed that year. The unabsorbed amount is added to the depreciation of the next tax year and so on, with no time limit stated in section 33(11)(b). Section 41(8) deems this carried-forward depreciation to be "actually allowed", so it still reduces the WDV. Section 33(11)(c) makes all this subject to sections 112(3) and 113(4).

Example. Take Ravi's year again with profit before depreciation of Rs 1,20,000 and depreciation of Rs 1,87,500. He is allowed Rs 1,20,000. The remaining Rs 67,500 (1,87,500 − 1,20,000) is added to next year's allowable depreciation. For WDV purposes the full Rs 1,87,500 counts as allowed, which is why his opening WDV for 2027-28 stays at Rs 10,62,500.

Section 112(3) says that when both a business loss and unabsorbed depreciation are to be carried forward, effect is first given to section 112. Business losses can be carried forward for eight tax years (section 112(2)), whereas section 33(11)(b) states no such limit for the depreciation add-on.

Is there extra depreciation on new plant?

Section 33(8) and (9) give an additional deduction on new machinery or plant for an assessee engaged in manufacture or production of an article or thing, or in generation, transmission or distribution of power. The conditions are that the assessee acquires and installs it and is the first to put it to use, and that it was not used before by anyone else inside or outside India. It must not be installed in office premises or residential accommodation (including a guest house), must not be office appliances or a road transport vehicle, and must not be an asset whose whole cost is allowed as a deduction elsewhere. These conditions are stated for plant that is not a ship or an aircraft.

Situation	Additional deduction (section 33(9))
New plant acquired and used for 180 days or more in the year	20% of actual cost in that year
Used for less than 180 days in the year	10% of actual cost in that year, and 10% in the next tax year

Which other rules affect the claim?

• Land and goodwill. Section 33(1) and (12)(a) list only buildings, machinery, plant, furniture and the named intangibles, and exclude goodwill. Land is not in the list, so it gets no depreciation.
• Meaning of "sold". Section 33(12)(c) includes a transfer by exchange or compulsory acquisition under any law, with an exception for specified amalgamations.
• Written-off shortfall on a power asset. For an asset depreciated under section 33(2), if it is sold, discarded, demolished or destroyed in a later year for less than its WDV and the shortfall is written off in the books, the difference is deductible (section 33(10)).
• Part business use. If a building, machinery, plant or furniture is not wholly and exclusively used for business, depreciation is restricted to the fair proportionate part, as determined by the Assessing Officer (section 33(3)(b)).
• Cost already deducted. If the actual cost of a machine or plant was allowed as a deduction under section 54, no depreciation is allowed on it (section 33(3)(c)).
• Leased premises. Capital spent on a structure, renovation, extension or improvement of a building you do not own is treated as a building you own for section 33 (section 33(6)). Appendix I, Note 3 applies the rate of the class of building to which the work relates.
• Mergers, demergers and successions. The total depreciation for the predecessor and successor, or the merging and merged companies, cannot exceed what would have been allowed without the change, and it is split in proportion to the days each used the assets (section 33(5)). Section 41(2) to (7) set the WDV in the transferee's hands.
• Technology from government laboratories. Rule 25(7) treats qualifying new plant as part of a block at 40% of WDV, subject to a certificate and other conditions in that rule.
• Power generation. For power undertakings, section 33(2) works on actual cost at percentages in Appendix II, with an option to use Appendix I instead (rule 25(3) to (6)).
• Assessees not previously required to compute total income. Revaluation in the books and book depreciation are adjusted when working out WDV (section 41(9)).

Real-life situations

Ravi renovates a rented shop. Ravi spends Rs 3,00,000 fitting out a shop he leases. He does not own the building, but section 33(6) treats the work as a building he owns. The shop is not mainly residential, so the 10% building rate applies to the block under Appendix I, Note 3.

Kabir uses his car for work and for family. Kabir, a consultant, uses one car partly for client visits and partly privately. Section 33(3)(b) allows only the fair proportionate part of the depreciation for the business use, as the Assessing Officer determines. He should keep a log of business use to back his claim.

Neha has a loss year. Neha's small trading firm made a loss before depreciation in 2026-27. Under section 33(11)(a)(ii) no depreciation is allowed that year. The depreciation is carried forward and added to the next year's deduction, and section 41(8) treats it as allowed, so her WDV still comes down.

Common mistakes

• Skipping depreciation in a loss year. Section 33(7) says the section applies whether or not you claim, so WDV falls anyway. Leaving it out makes later years inconsistent.
• Depreciating asset by asset. The rate is applied to the block's WDV, not to individual assets.
• Claiming the full rate on a late purchase. An asset bought and used for fewer than 180 days in the year gets half the rate (section 33(4)).
• Letting C exceed the block. Under section 41(1)(c), sale money counted against the block is capped at (A − D) + B.
• Treating computer software as a 15% asset. Appendix I places computers and software in the 40% block, and Note 7 defines software.
• Depreciating goodwill. Section 33(1)(b) excludes goodwill of a business or profession.

Quick reference

Point	Rule	Where
Depreciation basis	Rate x WDV of the block	Section 33(3)(a), rule 25(1)
Half rate	Acquired in the year and used under 180 days	Section 33(4)
Additional depreciation, new plant	20%, or 10% + 10% if used under 180 days	Section 33(8), (9)
Profit shortfall	Carried forward to next tax year, no time limit stated	Section 33(11)
Ceiling for certain taxpayers	40% of WDV	Rule 25(2)
Intangible assets	25%, acquired on or after 1 April 1998	Section 33(1)(b), Appendix I Part B

Where this is in the Act

• Section 33: deduction for depreciation, including sub-sections (1), (3), (4), (6), (7), (8), (9), (11) and (12).
• Section 41: written down value, including the block formula in sub-section (1)(c) and the carried-forward rule in sub-section (8).
• Rule 25 of the Income-tax Rules, 2026: allowance under section 33(2) and (3), the 40% ceiling and the laboratory technology rule.
• Appendix I (rate table for blocks of assets) and Appendix II (power undertakings) to the Rules.

If you rent business premises, see also our guide to TDS on rent under the Income-tax Act, 2025.

For a CA firm, the effort is tracking opening WDV by block for every client, year after year, and not losing the carried-forward figures. Finexo's practice management software keeps client records, working papers and deadlines in one place. It does not compute depreciation or file returns for you.