Depreciation in Your Books vs Depreciation for Tax: Why the Two Never Match
Book depreciation follows useful lives under the Companies Act, while income tax uses written-down value rates on blocks of assets, such as 15% for plant and machinery and 40% for computers. Assets used under 180 days in the first year get half the tax rate. The difference creates deferred tax. Keep both registers.
A business buys a ₹10 lakh machine. Its books show one depreciation figure and its tax return shows another. Both are correct, because they follow different rules. Understanding why saves arguments with auditors.
Two systems
| Books (Companies Act, Schedule II) | Income tax | |
|---|---|---|
| Basis | Useful life of each asset | Rate on a block of similar assets |
| Method | Straight line or written-down value | Written-down value |
| Purpose | True and fair profit | Taxable profit |
Proprietors and firms not covered by the Companies Act follow accounting standards for their books, but the idea is the same.
Common figures
| Asset | Typical useful life (Companies Act) | Income-tax rate (WDV) |
|---|---|---|
| General plant and machinery | 15 years | 15% |
| Computers and laptops | 3 years | 40% |
| Furniture and fittings | 10 years | 10% |
| Motor cars (not for hire) | 8 years | 15% |
| Office buildings | 60 years | 10% |
| Intangibles such as software licences | As per the licence period | 25% |
The 180-day half-rate rule
For tax, an asset used for less than 180 days in the year it is acquired gets half the normal rate that year. A machine installed in November gets 7.5%, not 15%, in that year.
Additional depreciation
Manufacturers buying new plant and machinery can claim additional depreciation of 20% of cost in the first year (half if used under 180 days, with the rest in the next year), subject to conditions. It is not available on office equipment, vehicles or second-hand machinery.
A worked example
A Rajkot manufacturer buys a ₹10 lakh CNC machine in October.
| Books (15-year straight line, half year) | Tax | |
|---|---|---|
| Normal depreciation | ₹33,333 | ₹75,000 (15% × half) |
| Additional depreciation | n/a | ₹1,00,000 (20% × half) |
| First-year total | ₹33,333 | ₹1,75,000 |
The difference creates a deferred tax liability, because tax is lower now and will be higher later.
Keep two registers
- A fixed asset register for books: each asset, cost, date put to use, life, depreciation, location.
- A tax block register: opening WDV of each block, additions (split by under and over 180 days), sales, and depreciation.
Frequently asked questions
Can I use the tax rates in my books?
Companies must follow Schedule II. Small non-corporate businesses often do, but auditors may question it.
What happens when I sell an asset?
In the tax block, the sale price reduces the block. A gain arises only if the sale exceeds the block's value, or the block becomes empty.
Is land depreciated?
No. Land is not depreciated in books or for tax.
Sources
- ✓Depreciation rates under the Income-tax Act, Tally
- ✓Depreciation rules 2026: rates and block of assets, Patron Accounting
This is a summary, not tax advice. Confirm with your chartered accountant.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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