Depreciation Methods under Income Tax Act vs Companies Act (SLM vs WDV Rules) (2026)

Fixed assets such as machinery, commercial vehicles, computers, and office furniture lose value over time due to wear, tear, and technological obsolescence. Depreciation is the systematic allocation of an asset's cost as an expense across its useful life.

In India, corporate accountants must manage a dual-depreciation framework: calculating financial depreciation for books of accounts under Schedule II of the Companies Act, 2013 and calculating tax depreciation under Section 32 of the Income Tax Act, 1961.

In this comprehensive 10-minute guide, we explain SLM vs WDV methods, the Income Tax "Block of Assets" system, 180-day half-rate rules, useful life estimations, and how book-tax depreciation gaps create Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL).

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1. Straight-Line Method (SLM) vs Written Down Value (WDV)

  Straight-Line Method (SLM)                       Written Down Value (WDV)
  ┌──────────────────────────────┐                ┌──────────────────────────────────┐
  │ Equal depreciation expense   │                │ Higher depreciation in early     │
  │ charged every single year    │ ─────────────► │ years, decreasing over time      │
  │ Asset reduces to zero residual│               │ Asset value never reaches zero   │
  └──────────────────────────────┘                └──────────────────────────────────┘

• Straight-Line Method (SLM): Depreciates asset cost equally over its estimated useful life.

  📐 Formula: Annual SLM Depreciation = (Original Cost − Residual Value) / Useful Life in Years

• Written Down Value (WDV): Applies a fixed percentage rate against the reducing book value at the beginning of each financial year.

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2. Companies Act 2013 (Schedule II) vs Income Tax Act 1961 (Section 32)

Indian businesses must maintain separate calculations for financial statements versus income tax returns:

Parameter	Companies Act, 2013 (Financial Books)	Income Tax Act, 1961 (Tax Return)
Primary Basis	Based on Useful Life of Individual Asset	Based on Block of Assets
Permitted Methods	SLM or WDV	WDV Only (Except power generation units)
Depreciation Rates	Calculated from Schedule II Useful Life	Fixed Statutory Block Rates (15%, 40%, etc.)
Pro-Rata Calculation	Daily / Monthly Pro-Rata basis	180-Day Rule (Half-rate if used < 180 days)

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3. Income Tax "Block of Assets" System & Rates

Under Section 32 of the Income Tax Act, individual assets are grouped into designated "Blocks of Assets" sharing the same tax rate:

Block of Assets Class	Income Tax WDV Rate	Example Included Assets
Plant & Machinery (General)	15%	Factory equipment, office ACs, general machines
Computers & Software	40%	Laptops, servers, desktop PCs, systems software
Commercial Vehicles	15% / 30%	Trucks, buses, delivery vans
Buildings (Residential)	5%	Staff quarters
Buildings (Commercial / Office)	10%	Office premises, warehouses, shop buildings
Furniture & Fixtures	10%	Office desks, chairs, retail shelving

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4. The 180-Day Rule for Income Tax Depreciation

If an asset is acquired and put to use during the financial year for less than 180 days (i.e., put to use on or after 4th October in a standard April-March FY):

• Rule: Income Tax depreciation for that first year is restricted to 50% of the normal block rate!
• Example: A computer (40% block rate) purchased on 10th November is granted only 20% depreciation in Year 1.

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5. Deferred Tax Assets (DTA) & Deferred Tax Liabilities (DTL)

Because Companies Act depreciation differs from Income Tax depreciation, book profit differs from taxable income:

• Deferred Tax Liability (DTL): Arises when Income Tax depreciation > Book depreciation in early years (paying lower tax today, creating future tax liability).
• Deferred Tax Asset (DTA): Arises when Book depreciation > Income Tax depreciation (paying higher tax today, creating future tax credit).

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6. Frequently Asked Questions (FAQ)

Q1: Can a Private Limited company use SLM for its financial books?

Yes! Under the Companies Act 2013, a company can choose SLM for its financial P&L statement, provided it maintains a separate WDV depreciation schedule for filing Corporate Income Tax Returns (Form ITR-6).

Q2: What is Additional Depreciation under Section 32(1)(iia)?

Manufacturing companies purchasing new plant and machinery can claim an Additional 20% Tax Depreciation in the first year over and above normal block depreciation.

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7. Conclusion

Automating dual-depreciation schedules inside your accounting software ensures that your financial P&L complies with Companies Act rules while your tax returns claim maximum statutory deductions under Section 32.

👉 Try ForkOST Automated Fixed Asset & Depreciation Engine — 14-day free trial, dual SLM/WDV schedules, Block of Assets management, and DTA/DTL calculation.
👉 Watch Fixed Asset Accounting at ForkOST Academy — video tutorials and asset register templates.