Telecommunications network equipment represents a significant capital investment for telecom operators. The Direct Tax Code (DTC) 2025 provides for depreciation of telecom network equipment under Section 33, with rates specified in the New Appendix I of the Income-tax Rules, 2026. Understanding the correct depreciation rates is essential for telecom operators to optimise tax outcomes and ensure compliance. This guide analyses the depreciation rates applicable to various categories of telecom network equipment.
The Depreciation Framework for Telecom Equipment
Section 33 — Deduction for Depreciation
Section 33 provides for deduction in respect of depreciation of:
- Tangible Assets: Buildings, machinery, plant or furniture
- Intangible Assets: Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature (acquired on or after 1st April, 1998)
Method of Depreciation
Depreciation is calculated on the Written Down Value (WDV) method for block of assets. Under the WDV method, the deduction is higher in earlier years and reduces progressively — a pattern that provides front-loaded tax benefits for capital-intensive telecom operators.
Rate Stability
For the financial year 2025-26, there have been no changes proposed to the prescribed depreciation rates or the core rules governing their calculation. The rates and regulations remain in effect.
Telecom Network Equipment — Depreciation Rates
General Plant and Machinery — 15%
General plant and machinery, including most telecom network equipment not specifically covered by higher rates, is eligible for depreciation at 15%.
Computers and Software — 40%
Computers (including computer software) used in telecom networks are eligible for depreciation at 40%. This includes:
- Network management systems
- Billing and OSS/BSS systems
- Software-defined networking (SDN) equipment
- Virtualised network functions (VNFs)
Telecom-Specific Equipment — Rate Determination
While the DTC does not prescribe a specific separate rate for all telecom equipment under a single category, telecom network equipment is generally classified under "plant and machinery" with a rate of 15%. However, certain specialised equipment may qualify for higher rates based on specific classifications.
Key Telecom Equipment Categories
| Equipment Category | Typical Classification | Depreciation Rate |
|---|---|---|
| General network equipment | Plant and machinery | 15% |
| Switching equipment | Plant and machinery | 15% |
| Transmission equipment | Plant and machinery | 15% |
| Base stations (BTS) | Plant and machinery | 15% |
| Telecom towers (passive) | Plant and machinery (buildings/structures) | 10% |
| Fibre optic cables | Plant and machinery | 15% |
| Network management systems | Computers/Software | 40% |
| OSS/BSS systems | Computers/Software | 40% |
| SDN/NFV infrastructure | Computers/Software | 40% |
Depreciation on Telecom Infrastructure
Telecom Towers (Passive Infrastructure)
Telecom towers (passive infrastructure) may be classified under buildings or structures for depreciation purposes. Buildings other than those used mainly for residential purposes are eligible for depreciation at 10% — significantly lower than the 15% rate for plant and machinery. This classification has significant tax implications for tower infrastructure investments.
Active Infrastructure
Active infrastructure (BTS equipment, switching equipment, transmission equipment) is typically classified under plant and machinery and eligible for depreciation at 15%.
Fibre Optic Networks
Fibre optic cable networks are generally classified under plant and machinery and eligible for depreciation at 15%.
IT Infrastructure
Network management systems, billing systems, OSS/BSS systems, and other IT infrastructure used in telecom operations may qualify for depreciation at 40% if classified as computers or software.
Special Rules
Less than 180 Days — Section 33(4)
If an asset is acquired during the tax year and put to use for less than 180 days, the deduction shall be restricted to 50% of the prescribed rate.
Partial Use — Section 33(3)(b)
If any building, machinery, plant or furniture is partly used for the purposes of the business or profession, the deduction shall be restricted to the fair proportionate part thereof.
Additional Depreciation — Section 33(8)
Additional depreciation of 20% (or 10% if used for less than 180 days) is available for new machinery or plant acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing.
Practical Compliance for Telecom Operators
1. Identify Asset Classification
- Determine the correct classification of each telecom asset
- Buildings (towers, shelters): 10%
- Plant and machinery (active network equipment): 15%
- Computers/software (IT systems): 40%
2. Calculate Depreciation
- Calculate depreciation on WDV at the applicable rate
- Apply the 50% rule if the asset was used for less than 180 days
3. Maintain Records
- Maintain records of asset acquisition and installation
- Maintain records of depreciation calculations
- Maintain records of usage
4. Claim Depreciation
- Claim depreciation in the tax return
- Ensure the claim is supported by proper documentation
Consequences of Non-Compliance
Disallowance of Depreciation
If the depreciation is incorrectly claimed:
- The deduction may be disallowed
- Income may be recomputed
- Interest and penalty may be levied
Penalty
Non-compliance may result in penalty under Section 439 for under-reporting of income.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on telecom network equipment depreciation. Our direct tax experts help telecom operators understand the depreciation rules, classify assets correctly, and navigate the regulatory framework. We assist in depreciation computation, compliance review, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on telecom depreciation or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex telecom depreciation framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Asset Classification: Guidance on correct asset classification
- Depreciation Computation: Assistance with accurate depreciation calculation
- Compliance Review: Review of depreciation compliance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your telecom depreciation matters.