1. What is Depreciation?

Depreciation is the reduction in the value of an asset over time due to wear and tear, obsolescence, or other factors. In India, depreciation is calculated for accounting and tax purposes using various methods as per the Income Tax Act.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( \text{Cost} \) — Original cost of the asset
• \( \text{Salvage Value} \) — Estimated residual value at end of useful life
• \( \text{Rate} \) — Depreciation rate (as decimal)

Explanation: This formula calculates annual depreciation by spreading the cost evenly over the asset's useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax deductions, and business planning. It helps in determining the true value of assets and proper allocation of costs.

4. Using the Calculator

Tips: Enter the original cost of the asset, its estimated salvage value, and the depreciation rate (as a decimal between 0 and 1). All values must be valid (cost > 0, salvage value ≥ 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What are the common depreciation methods in India?
A: Common methods include Straight Line Method (SLM) and Written Down Value Method (WDV) as per the Income Tax Act.

Q2: How is depreciation rate determined?
A: Rates are specified in the Income Tax Act for different asset classes, typically ranging from 5% to 100%.

Q3: What is the difference between book and tax depreciation?
A: Book depreciation follows accounting standards while tax depreciation follows Income Tax rules which may specify different rates/methods.

Q4: Can depreciation be claimed on all assets?
A: No, only on assets used for business or profession. Personal assets don't qualify for depreciation.

Q5: How does salvage value affect depreciation?
A: Higher salvage value reduces the depreciable amount, resulting in lower annual depreciation expenses.