Depreciation Rates for FY 2025-26 Under the Income Tax Act

Depreciation is a vital concept in the tax world for businesses and professionals alike. It allows you to claim the decrease in value of your assets over time and ultimately reduce your tax liability. For the financial year 2025-26, the depreciation under the Income Tax Act, follows a rate chart based on various asset types and their usage. Regardless as a small business owner, or a professional tax advisor, knowing the depreciation rates is important to assess the assessable income, and plan for taxation. 

This blog explains what depreciation is, how it is calculated, and the latest rates applicable for FY 2025-26 under the Income Tax Act, 1961.

What is Depreciation as per the Income Tax Act?

Depreciation refers to the decrease in the value of tangible and intangible assets over time due to usage, passage of time or obsolescence. Under Section 32 of the Income Tax Act, taxpayers are allowed to claim depreciation as per income tax rules on assets used for the purpose of business or profession. 

It helps business reduce their net taxable income since the depreciation amount is treated as an allowable expense. 

Who Can Claim Depreciation?

Not just big companies, depreciation can also be claimed by

• Individuals and professionals(like doctors and freelancer)
• Partnerships and LLPs
• Companies of all sizes. 

The key criteria are: 

• You own the asset(fully or partially). 
• The asset is used for your business or professional activities
• It was in use during the financial year. 

If the asset is also used for personal purposes, the depreciation must be proportionately reduced.

Basic Conditions to Keep in Mind

Before claiming depreciation, make sure: 

• The asset is actually used for business. 
• You’re using the Written Down Value (WDV) method — except in the case of power companies, who can also opt for the Straight Line Method (SLM),
• If the asset is used for less than 180 days in a year, you can only claim 50% of the rate.

Depreciation Rates for FY 2025–26: Key Asset Categories

Part A – Tangible Assets

1. Buildings

• Residential(excluding hotels/boarding houses): 5%
• Non-residential(commercial, offices): 10%
• Temporary wooden structures: 40%

2. Furniture & Fittings – 10%(includes electrical fittings)
3. Plant and Machinery

• General machinery, non-commercial motor cars: 15%
• Computers and software: 40%
• Commercial vehicles like lorries, buses, taxis:
  • Standard: 30%
  • Enhanced(for vehicles purchased between Aug 23, 2019 and Apr 1, 2020): 45%

4. Books

• Annual publications or library books: 100%
• Other books: 60%

Part B – Intangible Assets

5. Intangible Assets (patents, copyrights, trademarks, licences, know-how, franchise rights): 25%

Computation: How Depreciation Works

Depreciation is calculated on WDV, not cost. Steps: 

1. Initial WDV = Cost – (Opening Accumulated Depreciation)
2. Depreciation Charge = WDV × Applicable Rate
3. Closing WDV = WDV – Depreciation Charge

Example: A ₹1,00,000 computer:

• WDV Year 1= ₹1,00,000
• Depriciation @40%= ₹40,000
• Closing WDV=₹60,000
• Next year depreciation = ₹24,000 (40% of ₹60,000)

Key Points & Recent Updates in Depreciation Rates

• WDV Method Mandatory: Tax law prescribes the written-down value method, not straight-line, except for power-generating units.
  
• Enhanced Rates for Vehicles: A special 45% rate applies to commercial vehicles purchased under certain conditions during FY 2019–20—useful for fleets and logistics businesses.
  
• Intangibles at 25%: Recognises intellectual property amortisation—significant for tech and pharma firms.
  
• Temporary Structures: A High 40% rate speeds up deductions but is limited to short-term assets 

Applicability Checklist Depreciation Rates for FY 2025-26 Under the Income Tax Act

Are you using assets for business or professional purposes? Is the asset classified into correct block(tangible vs intangible)? Are you applying for the correct FY 2025–26 rate as per the table? Compute depreciation each year on WDV basis without capital improvements, except under specific sections. Maintain accurate asset registers – the Income Tax Department may audit. 

Impact on Financial Results

• Reduces taxable profits: Lower profit means lower tax outflow. 
• Affects cash flowing timing: Faster depreciation(eg. Computer at 40%) shields more profits earlier. 
• Balance sheet effects: High depreciation leads to declining asset value and impacts debt ratios. 

Conclusion

Depreciation may sound technical, but it’s actually one of the most valuable tools in your tax planning toolkit. It helps reflect the true value of your assets and lowers your tax burden over time. For FY 2025–26, stick to the updated rates and make sure your asset register is up to date.

Whether you’re doing the math yourself or relying on a tax advisor, staying informed about depreciation as per income tax ensures your financials are not only accurate but also optimised.

When in doubt, always check the latest government notifications or consult a tax professional to ensure you’re following the most recent rules.