Depreciation under Income Tax Act 2025: Section 32 & 34 Explained
Depreciation under Income Tax Act 2025: Section 32, Section 34, Rates, Examples & FAQs (AY 2025-26)
Depreciation is one of the most useful tax deductions available to businesses and professionals. Under the Income Tax Act 2025, depreciation allows taxpayers to reduce taxable income by claiming the decrease in value of business assets over time.

This deduction is mainly governed by Section 32 and supported by conditions under Section 34. Understanding how depreciation works helps businesses legally save tax and correctly calculate profits.
What is Depreciation?

Depreciation means the reduction in value of an asset due to usage, wear and tear, or becoming outdated.

For income tax purposes, depreciation is treated as a business expense, even though no actual cash payment happens every year. This reduces the taxable profit of the business.

Simple Example:
If a company purchases a machine for ₹1,00,000, its value will not remain the same forever. Due to regular use, the machine's value may reduce every year. This reduction is called depreciation, and the business can claim it as a deduction while calculating taxable income.
Important Sections Covering Depreciation
Section 32 – Depreciation Allowance

Section 32 allows deduction for depreciation on tangible and intangible assets used for business or profession.

Assets eligible for depreciation include:

  • Building
  • Machinery
  • Plant
  • Furniture
  • Vehicles
  • Computers
  • Patents
  • Trademarks
  • Copyrights
  • Technical know-how
Section 34 – Conditions for Claiming Depreciation

Section 34 specifies the conditions that must be satisfied to claim depreciation.

Depreciation Rates for AY 2025-26
Asset Type Depreciation Rate
Residential Building 5%
Commercial Building 10%
Furniture & Fittings 10%
Plant & Machinery 15%
Computers & Software 40%
Motor Car (Business Use) 15%
Intangible Assets (Patent, Trademark) 25%
Conditions to Claim Depreciation (Section 34)
1. Ownership of Asset

The taxpayer must own the asset either fully or partially.

Example: If a business purchases a computer, depreciation can be claimed even if the payment is made through a loan.
2. Used for Business Purpose

The asset must be used for business or professional activities.

Example: If a car is used 70% for business and 30% for personal use, depreciation can be claimed only on the business usage portion.
3. Asset Must Be Put to Use

Depreciation is allowed only when the asset is actually used during the financial year.

4. 180 Days Rule

If an asset is purchased and used for less than 180 days in a financial year, only 50% of the depreciation is allowed.

Example: Machine purchased on 1 January 2025 will be used for less than 180 days in FY 2024-25, so only half depreciation can be claimed.
5. Proper Records Must Be Maintained

The taxpayer must maintain proper invoices and asset details.

Method of Calculating Depreciation
Written Down Value (WDV) Method

Under the Income Tax Act, depreciation is calculated using the WDV method.

WDV = Cost of Asset – Depreciation already claimed

Depreciation is calculated on the remaining value every year.

Example of Depreciation Calculation (WDV Method)
Example 1 – Plant & Machinery

Cost of machine = ₹1,00,000
Depreciation rate = 15%

Year 1 depreciation = ₹15,000
WDV = ₹85,000

Year 2 depreciation = ₹12,750
Example 2 – Computer Purchase

Computer cost = ₹60,000
Rate = 40%

Depreciation = ₹24,000
Remaining value = ₹36,000
Example 3 – Asset Used Less Than 180 Days

Machine cost = ₹2,00,000
Rate = 15%

Normal depreciation = ₹30,000
Allowed depreciation = ₹15,000
Block of Assets Concept

Assets are grouped into blocks. Depreciation is calculated on total block value rather than individual assets.

Opening WDV = ₹5,00,000
New Asset = ₹1,00,000

Total block value = ₹6,00,000
Depreciation @15% = ₹90,000
Additional Depreciation (Section 32(1)(iia))

Manufacturing businesses can claim additional depreciation on new machinery.

Additional depreciation rate = 20%
Cost of machinery = ₹10,00,000

Normal depreciation = ₹1,50,000
Additional depreciation = ₹2,00,000

Total depreciation = ₹3,50,000
Assets on which Depreciation is NOT Allowed
  • Land
  • Personal assets
  • Assets not used in business
  • Assets not recorded in books

Land does not lose value due to usage, so depreciation is not allowed.

Advantages of Claiming Depreciation
  • Reduces taxable income
  • Helps correct profit calculation
  • Encourages investment
  • Improves tax planning
  • Reflects true asset value
FAQs on Depreciation under Income Tax Act 2025
1. Can salaried individuals claim depreciation?
Depreciation is allowed only for business or professional income.
2. Can depreciation be claimed on second-hand assets?
Yes, if used for business purposes.
3. Is depreciation compulsory?
Yes, WDV reduces even if not claimed.
4. Can depreciation create loss?
Yes, depreciation can reduce profit and create loss.
5. Can depreciation be claimed on car?
Yes, if used for business.
6. What happens if asset is sold?
Sale value is reduced from block value.
7. Can depreciation be claimed on laptop or mobile?
Yes, if used for business.
8. What is computer depreciation rate?
40%.
9. Is GST included in asset cost?
No, if GST credit claimed.
10. Can depreciation be claimed every year?
Yes, until asset value becomes zero or asset sold.
Conclusion

Depreciation under Income Tax Act 2025 helps businesses reduce tax burden and correctly calculate profits. Sections 32 and 34 provide clear rules regarding eligibility, calculation method, and conditions. Maintaining proper records and applying correct depreciation rates ensures accurate tax filing and compliance.
Disclaimer:
This article is for educational purposes only. For accurate tax calculation, consult a Chartered Accountant or refer to official Income Tax guidelines.