Knowing about tax depreciation rates will help you save money on taxes, whether you run a company, are self-employed, or own assets like cars or machinery. Many people file their income tax returns without understanding the great benefit depreciation offers. Allow us to grasp it simply here.
What is Depreciation?
Depreciation is the gradual loss in value of an asset over time. As they are used, items like furniture, laptops, cars, and machinery lose value. Every year, the Income Tax Department lets you cut a portion of that expense, lowering your taxable income.
Tax Depreciation Rates
Tax depreciation rates are applicable in this situation.
Why is Depreciation Significant?
- It lessens taxable income.
- It shows the actual worth of assets.
- It promotes purchases of commercial tools and equipment.
Though permitted under the Income Tax Act, depreciation is not a real cost like rent or wages.
India’s Common Tax Depreciation Rates
Under the Income Tax Act, these are some basic samples of tax depreciation rates (as per present guidelines):
- Business-related buildings: 10%
- Furniture and fittings: 10%
- Plant and mechanical equipment: 15%
- Computers and laptops: 40%
- Motor vehicles used for business: 15%
- Books (for professionals): 60%
Note: These rates are applied on the Written Down Value (WDV) approach, not the original cost.
How Does That Work?
Say you paid ₹1,00,000 for a machine, and the tax depreciation rate is 15%. You might claim ₹15,000 as depreciation in the first year.
In the next year, 15% will be computed on ₹85,000 (not on ₹1,00,000). This continues annually until the value becomes almost insignificant.
From Whom Can One Claim Depreciation?
- Entrepreneurs
- Professionals including doctors, architects, etc.; freelancers
- Businesses and corporations
You must be the owner of the asset and apply it for business needs. One cannot claim depreciation for a period if an asset is not used.
Key Points to Remember
- Only half of the depreciation may be claimed if an asset is used for less than 180 days in a year.
- Declared depreciation on land is not possible.
- Partially used personal assets for business can claim corresponding depreciation.
- If the asset is already completely written off, depreciation cannot be claimed.
Final Notes
If you run a business or work in a field, knowing tax depreciation rates will enable you to save a significant amount of taxes. Record your assets correctly and use the right rate when preparing your tax return. This is a wise and legal approach to yearly lower your taxable income.
