Depreciation Rates for Specialised Aerospace Manufacturing Equipment

The aerospace manufacturing sector in India is at the forefront of the Make in India initiative, with companies investing in state-of-the-art manufacturing facilities for aircraft, helicopters, UAVs, satellites, launch vehicles, and aerospace components. These investments involve specialised equipment that is often capital-intensive and technologically sophisticated. Proper depreciation planning is essential for aerospace manufacturers to optimise tax liability while maintaining accurate financial records.

Legal Framework

Statutory Provisions

Depreciation is governed by section 33 of the Income-tax Act, 2025, which provides for deduction in respect of depreciation of tangible assets, including buildings, machinery, plant, and furniture.

Rule 25 provides that depreciation allowance under section 33(3) shall be calculated at the percentages specified in Appendix I, Part A, on the written down value of the block of assets used for business or profession purposes.

Block of Assets Concept

Under section 33(3), depreciation is calculated on the written down value of the block of assets, not on individual assets. A block of assets is defined in section 2(17) as a group of assets falling within a class of assets comprising tangible assets (buildings, machinery, plant, or furniture) or intangible assets, in respect of which the same percentage of depreciation is prescribed.

Classification of Aerospace Manufacturing Equipment

General Plant and Machinery

Most aerospace manufacturing equipment falls under the general category of plant and machinery, eligible for depreciation at the rate of 15%.

Specialised Equipment

Certain specialised equipment may be eligible for higher depreciation rates based on specific provisions in Appendix I.

Computers and Software

Computers and computer software are eligible for depreciation at the rate of 40% under Appendix I, Part A, Sl. No. 5.

Depreciation Rate Summary

Specialised Aerospace Manufacturing Equipment

Machining Equipment

CNC Machining Centres

• 5-axis machining centres
• 3-axis machining centres
• Multi-tasking machines
• Turning centres
• Grinding machines

Classification: General plant and machinery - 15%

Composite Manufacturing Equipment

Composite Moulds and Tooling

• Autoclaves
• Composite layup tools
• Composite moulds
• Composite curing ovens

Classification: General plant and machinery - 15% Special Consideration: Moulds used in rubber and plastic goods - 30%

Additive Manufacturing Equipment

3D Printers

• Metal 3D printers
• Polymer 3D printers
• Composite 3D printers

Classification: General plant and machinery - 15%

Precision Measurement Equipment

Coordinate Measuring Machines (CMM)

• Bridge CMM
• Gantry CMM
• Portable CMM

Classification: General plant and machinery - 15%

Non-Destructive Testing (NDT) Equipment

NDT Systems

• X-ray and CT systems
• Ultrasonic testing equipment
• Eddy current testing equipment
• Dye penetrant testing equipment
• Magnetic particle testing equipment

Classification: General plant and machinery - 15%

Environmental Testing Equipment

Testing Chambers

• Temperature chambers
• Humidity chambers
• Vibration testing systems
• Thermal vacuum chambers

Classification: General plant and machinery - 15%

Clean Room Equipment

Clean Room Infrastructure

• Clean room air handling units
• Clean room filtration systems
• Clean room monitoring systems

Classification: General plant and machinery - 15%

Calibration Equipment

Calibration Systems

• Electrical calibration equipment
• Mechanical calibration equipment
• Dimensional calibration equipment
• Temperature calibration equipment

Classification: General plant and machinery - 15%

Assembly and Integration Equipment

Assembly Tools

• Assembly jigs and fixtures
• Assembly platforms
• Joining equipment
• Torque tools

Classification: General plant and machinery - 15%

Test Equipment

Ground Support Equipment (GSE)

• Functional test equipment
• System test equipment
• Avionics test equipment

Classification: General plant and machinery - 15%

Additional Depreciation

Conditions for Additional Depreciation

Section 33(8) provides for additional depreciation of 20% of the actual cost of new machinery or plant acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing, or generation/transmission/distribution of power.

Exclusion for Office Appliances and Road Transport Vehicles

Additional depreciation is not available for:

• Office appliances or road transport vehicles
• Assets on which the whole of actual cost is allowed as deduction in one year
• Assets installed in office premises or residential accommodation
• Machinery or plant used outside India before installation

Applicability to Aerospace Manufacturing

Aerospace manufacturers can claim additional depreciation on:

• Manufacturing equipment used in production
• Testing and inspection equipment
• Quality control equipment
• Assembly and integration equipment
• Tooling and fixtures

180-Day Rule

Where any asset is acquired during the tax year and put to use for less than 180 days, the additional depreciation is restricted to 10% (instead of 20%) for that year, with the remaining 10% available in the following year.

Conditions for Claiming Depreciation

Ownership and Use

Under section 33(1), depreciation is allowed only if:

• The asset is owned wholly or partly by the assessee
• The asset is used wholly and exclusively for business or profession purposes
• The asset is used during the tax year

Partial Use

Where the asset is partly used for business purposes and partly for non-business purposes, depreciation is restricted to a fair proportionate part.

180-Day Rule

Where any asset is acquired during the tax year and put to use for less than 180 days, the depreciation allowance is restricted to 50% of the prescribed rate.

Actual Use

The depreciation allowance requires actual use of the asset for business purposes.

Unabsorbed Depreciation

Carry Forward

Section 33(11) provides that unabsorbed depreciation is added to the depreciation allowance of the succeeding tax year and deemed to be part of that year's allowance.

Set Off

Unabsorbed depreciation can be carried forward indefinitely and set off against profits of future years.

Cessation of Business

Where business is discontinued, unabsorbed depreciation is not allowed to be carried forward.

Sale of Depreciated Assets

Computation of Capital Gains

Under section 74, where a capital asset forming part of a block of assets on which depreciation has been allowed is sold, the capital gains are computed based on the full value of consideration and the written down value of the block.

Profit on Sale

Where the full value of consideration exceeds the written down value of the block plus the actual cost of any new assets acquired during the year, the excess is deemed to be short-term capital gains under section 74(2).

Shortfall

Where the block ceases to exist because all assets in the block are transferred, and the consideration is less than the written down value, the shortfall is treated as a capital loss.

Depreciation Recapture

Section 38(1)(b) provides that where a tangible asset is sold, discarded, demolished, or destroyed, and the moneys payable together with scrap value exceed the written down value, the excess up to the actual cost is deemed to be profits and gains of business.

Compliance Requirements

Fixed Asset Register

Maintain a comprehensive fixed asset register containing:

• Asset description
• Date of acquisition
• Cost of acquisition (including incidental costs)
• Date of put to use
• Block of assets classification
• Depreciation rates applied
• Depreciation claimed year-wise
• Date of sale/discard
• Sale proceeds

Depreciation Schedule

Prepare a depreciation schedule showing:

• Opening written down value
• Additions during the year
• Deletions during the year
• Closing written down value
• Depreciation for the year
• Unabsorbed depreciation

Audit Requirements

Tax Audit (Section 63)

• Required where turnover exceeds Rs. 1 crore (or Rs. 10 crore with 5% cash transactions)
• Report in Form 3CD
• Includes details of depreciation

Statutory Audit

• Companies Act audit covers depreciation policies
• Auditor's report includes depreciation

Strategic Considerations

Asset Classification

Correct classification of assets is critical:

• Ensure assets are correctly classified in the appropriate block
• Verify that applicable depreciation rate is correct
• Consider whether asset qualifies for higher rate

Timing of Acquisition

Aerospace manufacturers should carefully time equipment acquisitions to optimise depreciation benefits:

• Equipment acquired before the 180-day cut-off date qualifies for full depreciation
• Equipment acquired after the cut-off date qualifies for only 50% depreciation
• Planning multiple acquisitions across years

Replacement Strategy

• Regular equipment replacement ensures continuous depreciation benefits
• Older equipment may have higher maintenance costs but lower depreciation benefits
• Balancing depreciation benefits with operational efficiency

High-Value Equipment

• Consider financing options (purchase, lease, hire purchase)
• Impact of depreciation benefits on investment decisions
• Tax implications of different financing structures

Expert Advisory on Aerospace Equipment Depreciation

Given the complexity and significant capital investments involved in aerospace manufacturing, professional advisory is essential. Anuj Desai & Associates provides comprehensive depreciation advisory services, including:

• Asset Classification: Correct classification and rate determination
• Depreciation Planning: Strategic planning for equipment acquisitions
• Additional Depreciation: Eligibility assessment and claim
• Documentation: Fixed asset register and depreciation schedule
• Audit Support: Assistance during tax audits and assessments
• Tax Planning: Optimisation of depreciation benefits
• Compliance: Ensuring compliance with all provisions

With deep expertise in depreciation provisions and thorough understanding of aerospace manufacturing, Anuj Desai & Associates ensures that your depreciation claims are fully compliant, optimally structured, and defensible.

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Need expert assistance with depreciation planning for your aerospace manufacturing equipment? Contact Anuj Desai & Associates today for comprehensive advisory, documentation, and representation services. Our team of experienced tax professionals will help you optimise your depreciation strategy. [Contact Us] to schedule a consultation.

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