Depreciation on tangible and intangible assets used for business or profession is governed by Section 33 of the Income-tax Act, 2025, corresponding to the erstwhile Section 32 of the 1961 Act. The block-of-assets method continues unchanged — similar assets attracting the same depreciation rate are grouped into a single block, and depreciation is computed on the written-down value of the entire block rather than asset by asset, with additions and deletions adjusted within the block each year.

Two conditions must be satisfied for depreciation to be allowed: the assessee must be the owner (wholly or partly) of the asset, and the asset must be used for the purposes of the business or profession during the relevant tax year. Both conditions have generated extensive litigation — 'ownership' has been read to include beneficial ownership even without a registered title in specified circumstances, and 'use' has been interpreted to include passive or ready-for-use standby assets in certain contexts, not merely assets in continuous active operation.

Additional depreciation is available for new plant and machinery acquired and installed by manufacturing and specified power-generation undertakings, over and above the normal depreciation rate, subject to conditions on the nature of the asset and the date of installation. Where an asset is used for less than 180 days in the year of acquisition, depreciation (including additional depreciation) is generally restricted to half the otherwise applicable rate, with the balance available in the subsequent year.

Relevant Case Laws

CIT v. Podar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC) — held that 'owner' for the purposes of claiming depreciation is not confined to a person holding a registered title, and that a person in possession of property in part-performance of a contract of sale, exercising rights of ownership, can be treated as the owner entitled to depreciation, giving the term a broad, purposive meaning.

ICDS Ltd. v. CIT (2013) 350 ITR 527 (SC) — held that a leasing/financing company that retains legal ownership of vehicles leased out to customers, and uses those vehicles for the purposes of its own leasing business (by earning lease rentals), is entitled to claim depreciation on them, even though physical use rests with the lessee, because 'use for the purpose of business' includes use by letting out assets on hire as part of the assessee's own business.

Frequently Asked Questions

Q. Can depreciation be claimed on an asset that is not registered in the taxpayer's name?

A. Yes, in appropriate circumstances — following Podar Cement, beneficial ownership and possession under a part-performed contract can suffice, though the specific facts of title and possession need to be carefully documented.

Q. Is depreciation available on an asset that is idle for part of the year?

A. Generally, an asset that is ready and available for use, and forms part of the block of assets actively used in the business, does not lose eligibility for depreciation merely because of temporary non-use, though continuous non-use over a longer period can raise the question of whether it remains a business asset at all.

Q. What happens if an asset is used for less than 180 days in the year of purchase?

A. Depreciation, including any additional depreciation, is restricted to 50% of the otherwise eligible rate for that year, with the remaining 50% of the normal (though not additional) depreciation typically available in the following year.

Q. Can a leasing company claim depreciation on assets it leases out to customers?

A. Yes — following ICDS Ltd. v. CIT, a leasing company remains entitled to depreciation on assets it owns and uses for its own leasing business, even though the physical possession and day-to-day use rests with the lessee.

Precautions to Be Taken

1.      Maintain a clear, updated block-of-assets register reconciling additions, deletions and the resulting written-down value each year, since errors compound across years and are difficult to unwind later.

2.      Where ownership is not evidenced by a registered title (for instance, possession under an agreement to sell, or assets under hire-purchase), retain the underlying contract and evidence of possession and use, since Podar Cement-type claims are fact-intensive.

3.      Track the exact date of installation and put-to-use for every major asset addition, since the 180-day rule can materially affect the depreciation claimed in the year of acquisition.

4.      For additional depreciation claims, verify that the specific eligibility conditions (nature of the undertaking, type of asset, and timing of acquisition) are satisfied and documented, since this is a frequently scrutinised area.

5.      For leasing and hire businesses, retain lease agreements and rental income records demonstrating that leased assets are used for the assessee's own business of leasing, to support depreciation claims under the ICDS Ltd. principle.

6.      Reconcile the depreciation claimed for tax purposes against the depreciation recorded in the books, and be prepared to explain the difference, since tax depreciation (block method, prescribed rates) commonly diverges from book depreciation (useful-life method under accounting standards).

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