Depreciation Rules in India

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Depreciation is a method of accounting for the erosion of assets due to wear-and-tear or obsolescence.
Depreciation is a method of accounting for the erosion of assets due to wear-and-tear or obsolescence. (Image: india flag icon. (with clipping path) image by Andrey Zyk from Fotolia.com)

Depreciation is the process by which a taxed entity recovers its basis in property that has been eroded due to obsolescence, depletion, and ordinary wear and tear. Essentially, allowing businesses to deduct for deprecation is the government's way of recognizing the reality of costs that otherwise do not show up on balance sheets. Indian tax law allows for depreciation on a variety of assets.

Buildings

Owners of buildings can depreciate them at an annual rate of 5 percent to 10 percent, depending on the type of building. Residential buildings take the 5 percent rate. Hotels and certain dwelling units depreciate at 20 percent. Purely temporary structures, such as tents, may be fully depreciated in a single year. (See References 1 and 2.)

Furniture

Furniture depreciates at 10 percent to 15 percent under Indian tax law, reflecting a shorter useful life than buildings.

Intangible assets

Intangible assets, such as goodwill, have a tendency to evaporate fast. India allows for a 25 percent depreciation allowance for intangible assets.

Machinery and equipment

Machinery and general equipment depreciates at 25 percent per year under Indian law.

Vehicles

India allows you to depreciate the cost of vehicles over five years, or 20 percent per year (See Reference 1), although Indian law prohibits taking depreciation on foreign cars. (See Reference 2.) Taxis, buses, and vehicles 'for hire' depreciate at 40 percent.

Aircraft and trucks

Planes, helicopters, and trucks depreciate at 40 percent per year in India.

Carry forward rules

If you have more depreciation in a given year than you have profits to write them off against, you can carry them forward to write them off against future profits. There is no time limit. (See Reference 2.)

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