pvtltd.co

Depreciation Dual-Basis Builder

Indian companies maintain TWO different depreciation computations: (1) Book depreciation under Companies Act 2013 Schedule II for P&L / financial statements; (2) Tax depreciation under IT Rule 5 / Appendix 1 for income tax computation. The difference creates a timing difference → deferred tax (Ind AS 12 / AS 22).

Asset 1

Books (Companies Act Schedule II)

Rate applied: 9.50%

Depreciation amount: ₹0

Tax (IT Rule 5)

Rate applied: 10%

Depreciation amount: ₹0

Tax depreciation exceeds book by ₹0 → Deferred Tax Liability (DTL)

Effective tax saving this year (vs booking): ₹0 (approximate 25% rate).

Summary

Total IT depreciation: ₹0
Total book depreciation: ₹0
Net timing difference: ₹0
IT uses block-based WDV — all assets of same rate are pooled. If net WDV of block becomes nil (after sales): no depreciation that year; if net WDV turns negative: short-term capital gain = negative WDV.
Assets put to use for < 180 days in the year of acquisition → IT depreciation = 50% of normal rate in that year only. Full rate applies from next year.
Because book depreciation (Companies Act) and tax depreciation (IT Rule 5) differ, a timing difference arises. Under Ind AS 12 / AS 22, this creates a Deferred Tax Liability (DTL) when tax depreciation > book depreciation (common in early years of asset life) or a Deferred Tax Asset (DTA) when book depreciation > tax depreciation.
Goodwill is NOT eligible for IT depreciation from AY 2021-22 (Finance Act 2021, s.32(1)(ii) amended). Goodwill created on acquisition must be identified separately and carried at cost in IT books.
VERIFY

Depreciation rates in this config are as per IT Appendix 1 (current as of FY 2025-26) and Schedule II Companies Act 2013. Confirm: (1) whether any depreciation notification has been issued for FY 2025-26 altering rates; (2) goodwill position post-FA 2021; (3) EV additional depreciation current rate; (4) whether software acquired under enterprise license (perpetual) still qualifies at 40%. This tool is for preliminary planning — statutory audit and tax computation should be prepared by qualified CA/CMA.

Statutory basis: Companies Act 2013 Schedule II (useful life method for financial accounts); IT Rules 1962 Rule 5 + Appendix 1 (WDV method for income tax); ITA 1961 s.32; Ind AS 16 (PPE); AS 10 (PPE under IGAAP)