Tag: Block of assets

Depreciation Under the Income-tax Act 2025: Rates, Block of Assets, Additional Depreciation and Carry Forward (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 17 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Depreciation under section 33 is allowed on buildings, machinery, plant and furniture and on intangible assets such as patents and licences, at a percentage of the written down value (WDV) of the block of assets (Rule 25 and Appendix I).
  • Key rates: residential buildings 5%, other buildings 10%, furniture 10%, plant and machinery 15%, motor cars 15%, buses, lorries and taxis on hire 30%, computers and software 40%, intangibles 25%.
  • An asset put to use for less than 180 days in the year gets half the rate, and new plant and machinery for manufacture or power generation can get additional depreciation of 20% (section 33(8) and (9)), which the new regime for individuals does not allow.
  • Unabsorbed depreciation is carried forward without a time limit and added to the next year’s depreciation (section 33(11)); land and goodwill are not depreciable.

Depreciation is a deduction in computing business or professional income for the wear and tear of assets. It is governed by section 33 of the Income-tax Act, 2025 (earlier section 32), with the rates in Rule 25 and Appendix I of the Income-tax Rules, 2026. It is a tax calculation, separate from the depreciation in the company’s accounts.

What qualifies (section 33(1))

  • Tangible assets: buildings, machinery, plant and furniture.
  • Intangible assets: know-how, patents, copyrights, trademarks, licences, franchises or other similar business or commercial rights, acquired on or after 1 April 1998.
  • The asset must be owned (wholly or partly) by the assessee and used wholly and exclusively for the business or profession.

Not depreciable: land and goodwill of a business or profession. If an asset is used only partly for the business, depreciation is restricted to a fair proportion (section 33(3)(b)).

Depreciation is allowed whether or not you claim it, so the written down value is reduced by the depreciation allowable each year (section 33(7)).

Block of assets and written down value

Assets of the same class with the same rate form a block. Depreciation is a percentage of the written down value of the block (section 33(3)(a)):

WDV = opening WDV + cost of assets bought in the year - sale proceeds of assets sold - depreciation of the year.

Half rate (section 33(4)): if an asset is acquired during the year and used for less than 180 days in that year, the depreciation on it is 50% of the prescribed rate.

Renovation of a leased building (section 33(6)): capital expenditure on a structure or renovation of a leased or occupied building is treated as a building owned by the assessee.

Rates (Rule 25 and Appendix I)

Block Rate on WDV
Buildings mainly for residence (other than hotels and boarding houses) 5%
Other buildings 10%
Purely temporary erections such as wooden structures 40%
Furniture and fittings, including electrical fittings 10%
Machinery and plant (general) 15%
Motor cars (other than those used on hire) 15%
Motor buses, lorries and taxis used on hire 30%
Aeroplanes and aero engines 40%
Computers, including computer software 40%
Containers of glass or plastic used as refills 40%
Energy saving devices, pollution control equipment, certain life saving medical equipment and certain other listed items 40%
Know-how, patents, copyrights, trademarks, licences, franchises (intangibles) 25%

“Buildings” include roads, bridges, culverts, wells and tubewells. A building is “mainly residential” if at least two thirds of its built-up area is used for residence. Assets that the table does not list separately, such as air conditioners, televisions, inverters and mobile phones, fall in the general class of machinery and plant at 15%; a laptop or desktop is a computer at 40%. Check the specific entries for special equipment.

40% ceiling for the new regimes (Rule 25(2)): the depreciation on any block cannot exceed 40% of the WDV for a domestic company that opts for the concessional rate under section 199(3), 200(5) or 201(2), for an individual, HUF, AOP, BOI or artificial juridical person whose income is taxed under section 202(1), and for a co-operative society that has exercised an option under section 203(5) or 204(2).

Additional depreciation (section 33(8) and (9))

For a business of manufacture or production, or generation, transmission or distribution of power, new machinery or plant acquired and installed and first put to use by the assessee gets, in addition:

  • 20% of the actual cost in the year of acquisition and use; or
  • 10% in that year if used for less than 180 days, and 10% more in the next year.

It is not allowed for ships and aircraft, plant that was used by another person before, plant installed in office premises or residential accommodation (including a guest house), office appliances, road transport vehicles, or assets whose whole cost is allowed as a deduction. An individual or HUF in the new regime cannot claim it (section 202(2)(a)(vi)).

Unabsorbed depreciation (section 33(11))

If profits before depreciation are less than the depreciation allowable:

  • depreciation is allowed to the extent of the profits (if there is a loss, none is allowed);
  • the balance is carried forward and added to the depreciation allowable in the next year, and so on, without any time limit; and
  • effect is given first to the brought-forward business loss under section 112(3).

Examples

1. Plant block. Opening WDV ₹10,00,000. In the year you buy plant for ₹2,00,000 and use it for 100 days.

  • Opening block: 15% × 10,00,000 = ₹1,50,000
  • Addition (less than 180 days): 7.5% × 2,00,000 = ₹15,000
  • Depreciation: ₹1,65,000. Closing WDV = 10,00,000 + 2,00,000 - 1,65,000 = ₹10,35,000.
  • If the plant is new and for a manufacturing business, additional depreciation of 10% × 2,00,000 = ₹20,000 is allowed this year, and ₹20,000 next year, other than for individuals in the new regime.

2. Laptop. A laptop costing ₹60,000 is bought in June and used for the rest of the year (more than 180 days). Depreciation at 40% = ₹24,000. WDV = ₹36,000. If bought in January and used for 70 days, depreciation is 20% = ₹12,000.

3. Car. A car for the proprietor’s business costs ₹10,00,000, in use throughout the year. Depreciation at 15% = ₹1,50,000. Taxis used on hire are at 30%.

4. Unabsorbed depreciation. Profit before depreciation ₹3,00,000, depreciation due ₹5,00,000. Depreciation of ₹3,00,000 is allowed and ₹2,00,000 is carried forward, to be added to next year’s depreciation.

Presumptive taxpayers

A presumptive taxpayer under section 58 is deemed to have claimed depreciation every year, and the written down value is computed on that basis (section 58(6)). No separate depreciation is claimed (see our post on presumptive taxation).

Practical points

  1. Keep a fixed asset register by block, with the date of purchase and the date of first use (for the 180 day test).
  2. Do not mix tax depreciation with the book depreciation under the Companies Act, 2013. The tax is the block system above.
  3. Sale of an asset reduces the block’s WDV; if the sale price exceeds the block’s WDV plus additions, a short-term capital gain arises, as in our post on depreciable assets.

Frequently asked questions

What are the income tax depreciation rates?

Under Appendix I to Rule 25: residential buildings 5%, other buildings 10%, temporary erections 40%, furniture and fittings 10%, plant and machinery 15%, motor cars (not on hire) 15%, buses, lorries and taxis used on hire 30%, computers including software 40%, and know-how, patents, copyrights, trademarks, licences and franchises 25%, each on the written down value of the block.

Is depreciation allowed on land?

No. Section 33(1) covers buildings, machinery, plant and furniture, and specified intangible assets. Land and goodwill are not depreciable assets.

What if I use an asset for less than 180 days?

If the asset was acquired in the year and used for less than 180 days, the deduction is 50% of the prescribed rate (section 33(4)).

What is additional depreciation?

An extra 20% of the actual cost of new plant or machinery in the year it is acquired and put to use, for a business of manufacture or production, or generation, transmission or distribution of power; 10% in that year and 10% next year if used for less than 180 days (section 33(8) and (9)). Individuals taxed in the new regime cannot claim it (section 202(2)).

Can I skip claiming depreciation?

No. Section 33(7) says the section applies whether or not you claim depreciation, so the WDV is reduced by the depreciation allowable.

What is unabsorbed depreciation?

Depreciation that cannot be set off because profits are too low. It is added to the depreciation of the next year, with no time limit, after the business loss carry forward under section 112 is given effect (section 33(11)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Sale of Depreciable Assets: Capital Gains Under Sections 74 and 75 (Earlier 50 and 50A)

Posted on by CA Meet Dhrangadhariya

Last updated: 13 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • When an asset in a block of assets on which depreciation has been allowed is sold, a capital gain arises only if the sale price exceeds the opening written down value of the block plus additions of the year plus the expenses of transfer (section 74(2)).
  • The excess is a short-term capital gain, whatever the holding period; if the block ceases to exist because all its assets are sold, the net result is also a short-term gain or loss (section 74(3)).
  • Where depreciation was allowed on an asset in a particular year, its written down value is taken as the cost of acquisition (section 75).
  • The tax is at the assessee’s slab rate or at the short-term rate, not at 12.5%.

A business that sells machinery, a vehicle or a building on which it has claimed depreciation does not compute the gain asset by asset, as it would for shares. The Income-tax Act, 2025 treats such assets in blocks, and sections 74 and 75 (earlier sections 50 and 50A) provide the special rules.

What is a block of assets

Depreciation is allowed on a block of assets: assets of the same class with the same depreciation rate. The block has an opening written down value (WDV) each year, which is reduced by depreciation and by the sale proceeds of assets sold, and increased by the cost of assets acquired.

Section 74(2): gain when part of a block is sold

If, during the tax year, the full value of consideration received or accruing for the transfer of one or more assets in a block exceeds the total of:

  • (a) the expenditure incurred wholly and exclusively on the transfer;
  • (b) the written down value of the block at the start of the tax year; and
  • (c) the actual cost of any asset of the block acquired during the tax year,

then the excess is deemed to be a short-term capital gain, irrespective of how long the asset was held. The gain is charged in the year of the sale.

If the sale price is less than or equal to this total, there is no capital gain under this section, and the sale is dealt with under the depreciation provisions for the block.

Example. The WDV of a block of machinery at the start of the year is ₹10,00,000. During the year, you buy a machine of the same block for ₹2,00,000 and sell an old machine for ₹14,00,000 (expenses ₹20,000).

  • Total = 20,000 + 10,00,000 + 2,00,000 = ₹12,20,000
  • Sale price ₹14,00,000 is more than ₹12,20,000, so short-term capital gain = ₹1,80,000

Section 74(3): the block ceases to exist

If all the assets of a block are transferred in the year, so that the block ceases to exist:

  • the cost of acquisition of the block is the WDV at the beginning of the year plus the actual cost of any asset of the block acquired during the year; and
  • the amount received or accruing is deemed a short-term capital gain (or a short-term loss, if it is less than that cost less the expenses).

Example. A block has a WDV of ₹6,00,000 and is entirely sold for ₹4,50,000 with no additions. The result is a short-term capital loss of ₹1,50,000 (less expenses). The loss is a capital loss and is dealt with under the loss rules (see our post on capital loss), not as a business loss.

Section 75: where depreciation was obtained on an asset

If depreciation has been obtained under section 33(2) for a capital asset in any tax year, then sections 72 and 73 apply with the modification that the written down value of the asset, as defined in section 41 and adjusted, is its cost of acquisition. This avoids a double benefit: the depreciation already claimed is not allowed again as a cost.

Who these provisions affect

  • Businesses and professions that claim depreciation (plant, machinery, vehicles, furniture, buildings, intangible assets).
  • Goodwill: if you bought goodwill and claimed depreciation before the tax year commencing 1 April 2020, the depreciation reduces the purchase price for its cost of acquisition (section 90(4)).

Tax and reporting

  • The gain is short-term and is taxed at the slab rates (individuals), or the rates for the entity (company, firm).
  • Report the gain in the capital gains schedule under short-term gains, with the block details.
  • Advance tax applies to the gain as it arises.

Points to remember

  1. The holding period does not matter: the gain is short-term.
  2. A gain arises only when the sale price exceeds the whole block’s WDV plus additions plus expenses.
  3. When a block disappears, a loss on its sale is a short-term capital loss, which can be set off only against capital gains.
  4. Keep the depreciation schedule to prove the WDV.

Frequently asked questions

How is a gain on a depreciable asset computed?

If the sale price of one or more assets of a block exceeds the total of the expenses of transfer, the written down value of the block at the start of the year and the cost of assets of the block bought during the year, the excess is a short-term capital gain (section 74(2)).

Is the gain long-term if I held the machine for many years?

No. The excess is deemed to be a short-term capital gain irrespective of the holding period (section 74(2)).

What if all assets in the block are sold?

The block ceases to exist. Its cost of acquisition is the written down value at the start of the year plus the cost of assets of that block bought during the year, and the net result is a short-term capital gain or loss (section 74(3)).

What happens if the sale price is lower than the block’s written down value?

No capital gain arises under section 74(2). The sale is dealt with under the depreciation provisions for the block, unless the block ceases to exist, in which case section 74(3) gives a short-term loss.

Does section 75 apply to every asset?

It applies where depreciation was obtained under section 33(2) for a capital asset in any tax year: the written down value of the asset as defined in section 41, as adjusted, is its cost of acquisition for sections 72 and 73.

What tax rate applies?

Short-term capital gain rates. Since the transaction is not on a stock exchange with STT, the gain is taxed at the assessee’s slab rates (or the rate of the entity).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.