Depreciation Calculator As Per Income Tax Act

Depreciation Calculation:

\[ \text{Depreciation} = \text{Cost} \times \text{Depreciation Rate (WDV or SLM)} \]

Asset Cost:

₹

Depreciation Rate:

Depreciation Method:

Number of Years:

Depreciation Results:

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1. What is Depreciation?

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up. For tax purposes, depreciation reduces taxable income by recognizing the declining value of business assets.

2. Depreciation Methods

The calculator supports two primary methods:

Written Down Value (WDV): \[ \text{Depreciation} = \text{Book Value} \times \text{Rate} \]
Straight Line Method (SLM): \[ \text{Depreciation} = \text{Cost} \times \text{Rate} \]

Key Differences:

WDV applies the rate to the reducing balance each year
SLM applies the same depreciation amount each year
WDV is more common for tax purposes in India
SLM shows equal expense throughout asset's life

3. Income Tax Act Provisions

Details: The Income Tax Act specifies depreciation rates for different asset classes (buildings, machinery, vehicles, etc.). The rates vary from 5% to 100% depending on the asset type and usage.

4. Using the Calculator

Instructions: Enter the original cost of the asset, select the applicable depreciation rate (as per Income Tax Act), choose the calculation method (WDV or SLM), and specify the number of years for depreciation calculation.

5. Frequently Asked Questions (FAQ)

Q1: Which method is better for tax purposes?
A: WDV is generally preferred for tax purposes as it results in higher depreciation in early years, reducing taxable income more initially.

Q2: What are common depreciation rates under Income Tax Act?
A: Buildings (5-10%), Machinery (15-40%), Computers (40%), Vehicles (15-30%), Intangible assets (25%).

Q3: Can I change depreciation methods later?
A: Generally no, the method should be consistent throughout the asset's life unless special permission is obtained.

Q4: Is depreciation mandatory for tax purposes?
A: Yes, if you claim expenses for business assets, depreciation must be calculated as per Income Tax Act provisions.

Q5: What happens when asset is sold?
A: The difference between sale price and written down value is treated as capital gain or loss for tax purposes.