Tax Laws and Practice · Profits and Gains from Business and Profession

Depreciation on Business Assets and Block of Assets

Updated 11 October 2026 · Fact-checked

Depreciation is a deduction for wear and tear of buildings, machinery, plant, furniture and specified intangibles used for business. Assets are grouped into blocks. Depreciation is a prescribed percentage of the block's written down value, worked out as [(A – D) + B – C] – E under section 41(1)(c) of the Income-tax Act, 2025.

Understand Depreciation on Business Assets

Depreciation is a deduction that lets a business recover the cost of an asset over its life. Under section 33 of the Income-tax Act, 2025, it is allowed on buildings, machinery, plant and furniture (tangible assets). It is also allowed on know-how, patents, copyrights, trademarks, licences, franchises and similar business or commercial rights (intangible assets) acquired on or after 1 April 1998. Goodwill is not covered. The asset must be owned wholly or partly by you and used wholly and exclusively for the business or profession.

The Act does not make you depreciate each asset on its own. It groups assets of the same class and the same prescribed rate into a block of assets. Depreciation is a prescribed percentage of the written down value (WDV) of the whole block. The rates are prescribed in the Rules, so the exam question will normally give you the rate.

WDV of a single asset is its actual cost, less depreciation actually allowed in earlier years. WDV of a block is worked out by the formula in section 41(1)(c). The block's opening WDV is the closing WDV of the previous year, plus the cost of assets bought in the year, less the sale proceeds of assets sold.

The key idea: when you sell one asset from a block, the block does not disappear. You simply reduce the block's WDV by the sale money. No profit or loss arises in the usual case. A separate deduction arises only in a special situation, such as the sale of an asset of a power-generation undertaking on which depreciation was allowed under section 33(2). That deduction comes from section 33(10), subject to its conditions.

Two more points matter. Section 33(7) provides that section 33 applies whether or not you claim the deduction in your return, so depreciation is allowable regardless of the claim. And the WDV is reduced only by depreciation actually allowed (D in the block formula). Under section 41(8), depreciation carried forward under section 33(11) is deemed to be depreciation actually allowed, so it also counts for this purpose.

Key rules to remember

WDV of block of assets: WDV = [(A – D) + B – C] – E; A = WDV of the block at the end of the preceding tax year; B = actual cost of assets acquired in the tax year; C = money payable plus scrap value of assets sold, transferred, demolished, destroyed or discarded in the year (C cannot exceed (A – D) + B); D = depreciation actually allowed for the preceding tax year; E = slump sale adjustment. Section 41(1)(c).
Depreciation on block: Depreciation = Prescribed rate % × WDV of block; Section 33(3)(a). Rates are prescribed, so use the rate given in the question.
Half-year rule: Depreciation = 50% of prescribed rate, if asset acquired in the year and used for less than 180 days; Section 33(4). Applies to assets acquired and put to use in the same tax year. Check the days of use carefully.
Additional depreciation: 20% of actual cost of new machinery or plant (10% if used for less than 180 days, and a further 10% in the next tax year); Section 33(8) and (9). Only for manufacturers/producers and power generation, transmission or distribution businesses, and only for eligible new machinery or plant.
Deduction on sale of a power-undertaking asset: Deduction = WDV – (money payable + scrap value), if money payable plus scrap value is less than the WDV and the shortfall is written off in the books; Section 33(10). It applies to a tangible asset on which depreciation was claimed and allowed under section 33(2), that is, an asset of an undertaking engaged in generation or generation and distribution of power. Three conditions must all be met: (a) the asset is sold, discarded, demolished or destroyed in a tax year other than the year it was first put to use; (b) the money payable plus scrap value is less than its WDV; (c) the deficiency is actually written off in the books of account.
Restriction to profits: If profit before depreciation is less than the depreciation, allow only up to the profit; carry forward the rest; Section 33(11). If there is a loss before depreciation, none is allowed that year and the whole amount is carried forward and added to depreciation of the next year.
Mixed use: Allowable depreciation = fair proportionate part for business use; Section 33(3)(b). The Assessing Officer decides the proportion where the asset is not wholly and exclusively used for business.

How to solve Depreciation on Business Assets questions

Use this order for any depreciation question. It keeps the block logic clear and stops you from missing the special adjustments.

1Check eligibility: the asset must be a building, machinery, plant, furniture or a listed intangible, owned by the assessee and used wholly and exclusively for business. Note any private use.
2Group the assets into blocks by class and prescribed rate. Treat each block separately.
3Write down the opening WDV of each block (A less D), plus the cost of additions (B), less the sale proceeds (C). Cap C at (A – D) + B.
4Check each addition for the 180-day test. If an asset was put to use for less than 180 days in the year it was acquired, apply only 50% of the rate on that asset.
5Compute normal depreciation on the block WDV. Where some additions need the 50% rate, split the block into the part at full rate and the part at half rate.
6Add additional depreciation (20% or 10%) on eligible new machinery or plant of manufacturers and power businesses. It is computed on actual cost, not WDV.
7Apply the profit limit of section 33(11) and carry forward any unabsorbed depreciation. Then state the closing WDV of each block.
8Write a one-line conclusion giving total depreciation allowed and the closing WDV.

Quickest way: Block table method

When to use it: Use this for numerical questions with several assets, sales and additions in one year.

Draw one column per block with rows: opening WDV, add purchases, less sale price, balance, depreciation, closing WDV.
Compute the balance first. Then split it into the full-rate part and the 50% part, if any asset was used for less than 180 days.
Compute additional depreciation separately on actual cost, in a side note.
Add the total depreciation of all blocks and check it against the profit limit.
Carry the closing WDV forward as the next year's opening WDV.

Common mistakes in Depreciation on Business Assets

Computing depreciation asset by asset instead of on the block.
Accounting depreciation works asset by asset, so students carry that habit into tax.
Fix: For tax, add all assets of the block and compute one figure on the block's WDV. Track assets separately only for the 180-day test.
Showing a capital gain or loss when one asset in a block is sold.
Students treat the sale like an ordinary asset sale.
Fix: Simply deduct the sale price from the block's WDV. A gain or loss does not arise merely because one asset of the block is sold, unless the specific rules apply.
Applying 50% of the rate to the whole block when only one addition was used for less than 180 days.
Students forget the 180-day test applies only to assets acquired in the year.
Fix: Apply the lower rate only on the addition that fails the test. The opening WDV and other additions get the full rate.
Computing additional depreciation on WDV, or claiming it for an office appliance or vehicle.
Students mix up the base and the eligibility conditions.
Fix: Use actual cost. Check section 33(8): the business must be manufacturing or power, and the machinery must be new. Office appliances, road transport vehicles and assets installed in office or residential premises are excluded.
Ignoring the profit limit and the carry forward of unabsorbed depreciation.
Students stop once the percentage is applied.
Fix: Compare depreciation with business profit before depreciation. The unabsorbed part is carried forward under section 33(11) and added to depreciation of the next year.
Letting the sale price exceed the block value and getting a negative WDV.
Students subtract C without checking the cap.
Fix: C cannot exceed (A – D) + B. Remember that the cap exists in the formula and watch for it when the sale value is high.

Worked examples

Example 1

The opening WDV of a block of machinery (rate 15%) of Shree Textiles Ltd. on 1 April of the tax year is ₹10,00,000. During the year it bought machinery for ₹4,00,000 on 1 July (put to use the same day) and sold an old machine of the block for ₹1,50,000. Compute depreciation and closing WDV. Ignore additional depreciation.

Show the solution

Opening WDV (A – D) = ₹10,00,000.
Add: purchase during the year (B) = ₹4,00,000. Total = ₹14,00,000.
Less: sale proceeds (C) = ₹1,50,000. C is below ₹14,00,000, so no cap applies. Block WDV = ₹12,50,000.
The new machine was bought on 1 July and used from that day. From 1 July to 31 March is 274 days, which is more than 180 days, so the full rate applies.
Depreciation = 15% × ₹12,50,000 = ₹1,87,500.
Closing WDV = ₹12,50,000 – ₹1,87,500 = ₹10,62,500.

Answer: Depreciation is ₹1,87,500 and the closing WDV of the block is ₹10,62,500.

Example 2

Kaveri Engineering Ltd., a manufacturer, has a block of plant and machinery (rate 15%) with opening WDV of ₹8,00,000. On 1 January in the tax year it acquired and installed new eligible machinery costing ₹6,00,000 and put it to use at once. No asset was sold. Compute total depreciation including additional depreciation, and the closing WDV. Business profit before depreciation is sufficient.

Show the solution

Block WDV before depreciation = ₹8,00,000 + ₹6,00,000 = ₹14,00,000.
The new machine was used from 1 January to 31 March, which is 90 days. This is less than 180 days, so only 50% of the rate applies to it under section 33(4). The effective rate is 7.5%.
Depreciation on opening WDV = 15% × ₹8,00,000 = ₹1,20,000.
Depreciation on new machine = 7.5% × ₹6,00,000 = ₹45,000.
Normal depreciation = ₹1,20,000 + ₹45,000 = ₹1,65,000.
Additional depreciation: the machine is new and used by a manufacturer, and is used for less than 180 days, so it is 10% of actual cost under section 33(9)(b) = ₹60,000. A further 10% (₹60,000) is allowed in the next tax year.
Total depreciation for the year = ₹1,65,000 + ₹60,000 = ₹2,25,000.
Closing WDV: under section 41(1)(c), the block WDV of ₹14,00,000 is reduced by all depreciation actually allowed for the year, which is the normal depreciation of ₹1,65,000 plus the additional depreciation of ₹60,000, a total of ₹2,25,000. Closing WDV = ₹14,00,000 – ₹2,25,000 = ₹11,75,000.

Answer: Total depreciation for the year is ₹2,25,000 (normal ₹1,65,000 and additional ₹60,000). The closing WDV of the block is ₹11,75,000. A further additional depreciation of ₹60,000 is available in the next tax year.

Exam tips

Start every numerical with the block table. Even if you make an arithmetic slip, marks are awarded for the correct method.
Always state the provision before the working: section 33 for depreciation and section 41(1)(c) for WDV. ICSI answers carry marks for the provision, then the analysis, then a conclusion.
Read the dates of purchase and first use carefully. The 180-day test is the most common hidden trap.
For theory questions, learn the conditions in section 33(1) and 33(8) as lists. Questions often ask who can claim additional depreciation and which assets are excluded.
Write the closing WDV at the end of every answer. It shows you understand that the block continues to the next year.

Practice questions from Profits and Gains from Business and Profession

Depreciation on Business Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Depreciation on Business Assets: frequently asked questions

What is the difference between written down value and block of assets?

Written down value is a figure: the cost of an asset or block less depreciation already allowed. A block of assets is a group of assets of the same class and rate. Depreciation is computed on the WDV of the whole block, as laid down in section 41(1)(c).

What happens to the block when one asset is sold?

You deduct the sale proceeds from the block's WDV. The block continues and depreciation is computed on the reduced figure. The sale proceeds cannot take the WDV below zero, because C is capped at (A – D) + B.

Is depreciation allowed if I do not claim it in my return?

Yes. Section 33(7) says the provisions of section 33 apply whether or not you claim the deduction. So depreciation is allowable regardless of whether you claim it. For WDV, only depreciation actually allowed reduces the block, and under section 41(8) depreciation carried forward under section 33(11) is deemed to be actually allowed.

Who can claim additional depreciation?

Businesses engaged in manufacture or production of an article or thing, or in generation, transmission or distribution of power. The machinery or plant must be new, installed by the assessee and first put to use by the assessee. Office appliances, road transport vehicles and assets installed in office or residential premises are excluded.

What if the business profit is less than the depreciation?

Under section 33(11), depreciation is allowed only up to the available profit. If there is a loss, none is allowed. The unabsorbed amount is added to the depreciation of the next year and carried forward in the same way.