Depreciation Under the Companies Act and the Income-tax Act — Why One Asset Carries Two Numbers
Published: August 18, 2026
Reviewed by CA Kiren Kumar K
The same machine, in the same year, is depreciated twice — once for the shareholders and once for the tax return. That is not a reconciliation failure. It is what the two statutes each require. Schedule II of the Companies Act 2013 allocates the depreciable amount of each asset over its useful life for the financial statements. Section 33 of the Income-tax Act 2025 allows a deduction computed as a prescribed percentage of the written down value of a block of assets for the tax computation. Two units of account, two bases, two numbers.
For how one register holds this alongside a locked year and an immutable year-end snapshot, see fixed asset register and depreciation.
Most guidance on this comparison is now out of date in a specific, checkable way: it cites section 32 of the Income-tax Act 1961. That Act has been replaced. The Income-tax Act 2025 came into force on 1 April 2026 and applies from tax year 2026-27, and depreciation now lives in section 33. The method did not change; the numbering did. This guide states the comparison in the current sections, and gives the 1961-to-2025 mapping first, so the reader can convert their existing working papers rather than re-learn the subject.
1. The section numbers moved on 1 April 2026
The Income-tax Act 2025 came into force on 1 April 2026 and applies from tax year 2026-27, replacing the Income-tax Act 1961. Depreciation, the block-of-assets definition and the meaning of written down value all survive — under new numbers:
| Provision | Income-tax Act 1961 | Income-tax Act 2025 |
|---|---|---|
| Depreciation allowance | Section 32 | Section 33 |
| Definition of "block of assets" | Section 2(11) | Section 2 |
| Written down value of a block of assets | Section 43(6) | Section 41(1)(c) (via section 33(12)(d)) |
Two points matter for the transition, and both are reassuring. First, written down value balances as on 31 March 2026 carry forward into the 2025 Act regime without adjustment — there is no re-basing exercise, no restatement of blocks, no opening-balance reconciliation to construct. Second, the block-and-written-down-value machinery is conceptually unchanged: the same grouping of assets into blocks, the same percentage-of-written-down-value computation. A depreciation schedule that was correct under the 1961 Act continues to be correct in substance; what changes is the section reference against which it is described, defended in assessment, and cited in the notes.
So the practical work here is clerical rather than technical — updating the statutory references in fixed asset schedules, tax audit working papers, accounting-policy notes and internal depreciation memoranda from section 32 to section 33, and from section 43(6) to section 41(1)(c). It is worth doing deliberately, because a stale citation in a working paper is exactly the kind of detail that invites an avoidable query.
2. Schedule II and section 33, side by side
The differences are structural, not cosmetic. Each row below is a place where the two computations diverge for the same asset:
| Companies Act 2013 — Schedule II | Income-tax Act 2025 — Section 33 | |
|---|---|---|
| Purpose | Reports the charge and carrying amount in the financial statements presented to shareholders. | Computes a deduction in arriving at taxable business income. |
| Unit of account | The individual asset — and, where a significant part has a different useful life, that part separately. | The block of assets: a group of assets within a class for which the same percentage of depreciation is prescribed. |
| Method | Straight-line or written-down-value, as the company chooses and discloses. | A prescribed percentage applied to the written down value of the block (section 33(3)(a)). |
| Basis | The useful life of the asset. Schedule II gives indicative lives; a different life may be used with disclosure and technical justification. | The percentage prescribed for the class of assets — not an entity-specific estimate. |
| Part-year additions | Pro rata from the date of addition (and until the date of disposal). | Where an asset acquired during the tax year is put to use for less than 180 days, the deduction is restricted to 50% of the prescribed rate for that year (section 33(4)). |
| Disposal | Asset-wise: the asset leaves the register and the result goes through the statement of profit and loss. | Dealt with within the block, because the block — not the asset — is the unit on which written down value is determined (section 33(12)(d), read with section 41(1)(c)). |
| Residual value | Ordinarily not more than 5% of original cost; a different figure requires disclosure and justification. | No equivalent cap features in the computation, which applies a prescribed percentage to the block's written down value. |
| Goodwill | A question for the accounting framework the company applies, not for Schedule II useful lives. | Outside the scheme: goodwill is excluded from the definition of a block of assets and from the intangibles on which depreciation is allowed. |
3. The Companies Act side: useful life, components, pro rata
Schedule II states the principle directly — "Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life." Everything on this side follows from that sentence. The charge is an allocation over an estimated life, made asset by asset, using straight-line or written-down-value as the company decides and discloses.
Three features of the Schedule II computation have no counterpart on the tax side:
- Useful life is an estimate the company owns. Schedule II sets out indicative lives — buildings with an RCC frame at 60 years, general plant and machinery at 15 years, servers and networks at 6 years, end-user devices such as desktops and laptops at 3 years, general furniture and fittings at 10 years, motor cars other than those used in a hire business at 8 years. These are indicative: a company may adopt a different useful life or residual value, provided it discloses the difference and supports it with technical justification. The tax computation offers no such latitude — the percentage is prescribed.
- Component accounting is mandatory. Since financial years beginning on 1 April 2015, where a significant part of an asset has a useful life different from the remaining asset, that part is depreciated separately. So a single invoice can become several depreciable units in the books, each running on its own life — while remaining part of one block for tax.
- Additions and disposals are pro rata. Depreciation runs from the date of addition, and until the date of disposal, measured in days. Nothing turns on a 180-day line; an asset put to use on 20 March earns eleven days of depreciation, no more and no less.
The consequence for record-keeping is that the book computation needs a date of capitalisation, a method, an estimated life and a component breakdown for every asset — a level of detail the fixed asset register has to carry item by item.
4. The Income-tax side: blocks, the 180-day rule, additional depreciation
Section 33 allows depreciation on tangible assets — buildings, machinery, plant and furniture — and on intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises and similar business or commercial rights, but not goodwill. The asset must be owned wholly or partly by the assessee and used for the purposes of the business or profession. Both limbs matter: ownership and use, not merely possession.
From there the computation departs from the books in three ways:
- The block, not the asset, is the unit. A "block of assets" is a group of assets within a class — tangible, or the intangibles listed above — for which the same percentage of depreciation is prescribed; goodwill is excluded. Section 33(3)(a) then allows, for a block, a deduction of "such percentage of its written down value, as may be prescribed." Individual assets lose their identity inside the block: the computation is made on the block's written down value, whose meaning section 33(12)(d) takes from section 41(1)(c).
- The 180-day rule replaces pro rata. Where an asset is acquired during the tax year and put to use for less than 180 days in that year, the deduction for that year is restricted to 50% of the prescribed rate (section 33(4)). It is a half-rate switch, not a day-count — which is why the tax and book charges on a March addition diverge sharply in year one.
- Additional depreciation for manufacturing and power. For new machinery or plant in manufacturing or in the generation of power, section 33(8) and (9) allow additional depreciation of 20% of actual cost. Where the asset is used for less than 180 days in the year of acquisition, 10% is allowed in that year and the remaining 10% in the succeeding year. This has no book counterpart at all — the financial statements recognise no such allowance.
Note what these three do together. Assets that are individually tracked, individually componentised and individually depreciated in the books are pooled by prescribed rate for tax; a part-year addition is treated by a threshold rather than a calendar; and a manufacturing asset may attract a further allowance the books never see. The gap between the two numbers is designed in.
5. The gap between the two books: deferred tax
Because both computations write down the same cost over different periods, the book carrying amount and the tax written down value of an asset drift apart and then converge again over the asset's life. That difference is a timing difference, and it is accounted for as deferred tax — under AS 22 for companies applying Accounting Standards, or Ind AS 12 for companies on Indian Accounting Standards.
This page does not compute deferred tax and does not attempt to. The measurement rules, the recognition tests and the presentation requirements are set out in those standards, and the ICAI material on them is the place to work from. The point to carry away here is narrower: the divergence documented above is the source of the deferred tax balance, so the quality of the deferred tax working depends directly on whether the two depreciation schedules are maintained cleanly and can be tied back to the same asset records.
6. Where the rates and the lives actually live
The two sides publish their inputs in different places, and it is worth knowing which is which. The useful lives are in the statute itself — Schedule II to the Companies Act 2013 — and they are indicative, so a company may depart from them with disclosure and technical justification. The depreciation percentages for tax are prescribed under the income-tax rules: section 33(3)(a) allows "such percentage of its written down value, as may be prescribed", which means the rate is not in the section you are reading but in what is prescribed for the class of assets.
Rate tables reproduced on third-party pages go stale quietly, and a stale rate is worse than no rate. For the prescribed percentages, work from the official source at incometaxindia.gov.in rather than a copy — particularly in the first years of the 2025 Act, while secondary material catches up with the renumbering.
7. Frequently asked questions
Is a company required to maintain both depreciation computations?
Yes. They answer different questions and neither substitutes for the other. Depreciation under Schedule II of the Companies Act 2013 is the systematic allocation of the depreciable amount of an asset over its useful life, and it determines the carrying amount and the charge in the financial statements. Depreciation under section 33 of the Income-tax Act 2025 is a deduction computed on the written down value of a block of assets at a prescribed percentage, and it determines taxable business income. A company therefore runs the Schedule II computation for its books and the section 33 computation for its return, from the same underlying asset records.
Which depreciation applies to an LLP or a partnership firm?
Schedule II depreciation is a Companies Act requirement and applies to companies. Depreciation under section 33 of the Income-tax Act 2025 is available to an assessee carrying on a business or profession, on assets owned wholly or partly by the assessee and used for that business or profession — so an LLP or a firm computes depreciation under section 33 for its tax computation, while its books follow the accounting framework applicable to it rather than Schedule II.
What changed for depreciation under the Income-tax Act 2025?
The Income-tax Act 2025 came into force on 1 April 2026 and applies from tax year 2026-27, replacing the Income-tax Act 1961. Depreciation now sits in section 33, the successor of section 32 of the 1961 Act. The definition of a block of assets moved from section 2(11) of the 1961 Act to section 2 of the 2025 Act, and the meaning of written down value of a block moved from section 43(6) to section 41(1)(c). The mechanics are conceptually unchanged: written down value balances as on 31 March 2026 carry forward into the new regime without adjustment. What moved were the section numbers, not the method.
Why do the two depreciation figures differ for the same asset?
Because the two computations use a different unit, a different basis and a different part-year rule. Schedule II works asset by asset — with a significant part having a different useful life depreciated separately — over the asset's useful life, pro rata from the date of addition, down to a residual value ordinarily capped at 5% of original cost. Section 33 works on the block of assets as a whole, applying a prescribed percentage to the block's written down value, and restricts the deduction to 50% of the prescribed rate where an asset acquired during the year is put to use for less than 180 days. Different unit, different basis, different part-year convention — so the same asset produces two numbers.
Does claiming depreciation under one Act affect the other?
No. The Schedule II charge in the financial statements does not set the section 33 deduction, and the section 33 deduction does not set the book charge. They are computed independently from the same asset records. What links them is the difference itself: because both write down the same cost over different periods, the gap between the book carrying amount and the tax written down value is a timing difference, accounted for as deferred tax under the standard the company applies.