Maximizing Returns: Navigating Depreciation Rates in Tax Planning
The rate of depreciation allowed as per the Income Tax Act varies depending on the asset’s nature, classification, and usage. Depreciation is a tax-deductible expense that allows businesses to account for the wear and tear or obsolescence of their assets over time. Here are the common depreciation rates prescribed under the Income Tax Act for different categories of assets:
1. Tangible Assets
- Buildings (excluding residential buildings): 5%
- Plant and Machinery: 15%
- Furniture and Fixtures: 10%
- Ships, Aircraft, and Motor Vehicles (other than those used in a business of running them on hire): 15%
- Computers and Computer Software: 40%
- Intangible Assets (such as patents, copyrights, trademarks): Generally, depreciation is not allowed. However, amortization may be applicable for certain intangible assets.
2. Intangible Assets
- Goodwill: Generally, depreciation is not allowed.
- Know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature: Generally, depreciation is not allowed. However, amortization may be applicable for certain intangible assets.
3. Special Cases
- Assets acquired and put to use for less than 180 days in the year of acquisition: Half of the normal depreciation rate.
- Power Generating Units: Depreciation rates as prescribed by the Income Tax Act or rules made thereunder.