Which method of depreciation is approved by income tax act?

As prescribed by the Income Tax Act, 1961, the block of assets is considered to calculate depreciation. According to the block of assets, similar assets with the same rate of depreciation are clubbed in one block to calculate depreciation. As per the Act, all tangible assets are put in one block. Machinery, furniture, plants, buildings, offices, etc. are tangible assets. Intangible assets are kept in another block, which are trademarks, copyrights, patents, licenses, commercial rights, etc. The same rate of depreciation is prescribed for them considering their same nature. So which method of depreciation is approved by Income Tax Act, let us check it out.

Put-to-use criteria are used for calculating the depreciation.

• In the year of purchase, if the asset is put-to-use for more than 180 days, the full rate of depreciation is considered.

• In the year of purchase, if the asset is put-to-use for less than 180 days, half the rate of depreciation is considered.

An additional depreciation can be claimed by the assessee in some conditions if any new plant or machinery has been purchased. 

The following formula is applied to calculate depreciation:

Depreciation = WDV of block X Rate of depreciation under WDV (prescribed under Income Tax Act)

The rate of depreciation for buildings is as follows:

1. Residential buildings not including boarding houses and hotels - 5%

2. Boarding houses and hostels - 10%

3. Purely temporary constructions like wooden structures - 40%

I hope now it’s clear ‘

which method of depreciation is approved by income tax.’