Depreciation allowance is a deduction available under Section 32 of the Income Tax Act, 1961, allowing businesses to claim a portion of the cost of assets used in their operations. This deduction recognizes the wear and tear or obsolescence of assets over time and helps in reducing taxable income.

Key Aspects of Depreciation Allowance

1. Eligible Assets

Depreciation can be claimed on the following assets:

• Tangible Assets: Buildings, machinery, plant, furniture, etc.

• Intangible Assets: Patents, copyrights, trademarks, licenses, and other similar business rights.

2. Conditions for Claiming Depreciation

To avail of depreciation allowance, the following conditions must be met:

• The asset must be owned (wholly or partly) by the taxpayer.

• It must be used for business or professional purposes during the relevant financial year.

3. Block of Assets Concept

Depreciation is calculated based on the block of assets approach, where assets of similar nature and usage are grouped together. The entire block is subject to depreciation, rather than individual assets.

4. Depreciation Rates

The Income Tax Act specifies different depreciation rates depending on the type of asset:

• Buildings: 5% (residential) or 10% (commercial)

• Plant & Machinery: 15% (general machinery, higher for specific equipment)

• Furniture & Fittings: 10%

• Computers & Software: 40%

• Intangible Assets: 25%

5. Methods of Depreciation

• Written Down Value (WDV) Method: Used for most businesses where depreciation is applied to the asset’s reduced value each year.

• Straight-Line Method (SLM): Available only to certain undertakings (e.g., power generation units), where depreciation is equally spread over the asset’s life.

6. Additional Depreciation

For businesses engaged in manufacturing or power generation, additional depreciation may be available on new plant and machinery, subject to conditions.