Depreciation is one of the most significant non-cash deductions available to manufacturing businesses, reducing taxable profit and improving cash flow. With the Direct Tax Code (DTC) 2025 coming into force from 1st April 2026, the depreciation framework moves from Section 32 of the old Act to Section 33 of the new Act, accompanied by Rule 25 of the Income-tax Rules, 2026 and reorganised Appendix I and Appendix II rate tables. This guide provides the complete depreciation rate table for manufacturing plant and machinery and explains the key provisions.
The Depreciation Framework Under Section 33
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, except for certain specified assets where depreciation is calculated on actual cost. Under the WDV method, the deduction is higher in earlier years and reduces progressively — a pattern that provides front-loaded tax benefits.
Key Terms
- Block of Assets: A group of assets of the same class (tangible or intangible) with the same depreciation rate. Individual assets lose identity once grouped into a block.
- Written Down Value (WDV): Opening WDV = Cost of assets in the block – depreciation already claimed + additions during the year – sale proceeds of assets sold during the year.
- Actual Cost: The cost incurred to acquire the asset, including installation, transport, and duties — but excluding any portion met by subsidy or reimbursement.
Complete Depreciation Rate Table — Plant and Machinery
General Plant and Machinery (15%)
| Asset Type | Depreciation Rate |
|---|---|
| Plant and machinery (other than specified) | 15% |
| Motor cars (normal use) | 15% |
Specialised Plant and Machinery (30%)
| Asset Type | Depreciation Rate |
|---|---|
| Motor buses, motor lorries and motor taxis used in a business of running them on hire | 30% |
| Moulds used in rubber and plastic goods factories | 30% |
Accelerated Depreciation (40%)
The following categories of plant and machinery are eligible for 40% depreciation:
Computers and Software:
- Computers (including computer software) | 40%
Air Pollution Control Equipment:
- Electrostatic precipitation systems | 40%
- Felt-filter systems | 40%
- Dust collector systems | 40%
- Scrubber-counter current/venturi/packed bed/cyclonic scrubbers | 40%
- Ash handling system and evacuation system | 40%
Water Pollution Control Equipment:
- Mechanical screen systems | 40%
- Aerated detritus chambers (including air compressor) | 40%
- Mechanically skimmed oil and grease removal systems | 40%
- Chemical feed systems and flash mixing equipment | 40%
- Mechanical flocculators and mechanical reactors | 40%
- Diffused air/mechanically aerated activated sludge systems | 40%
- Aerated lagoon systems | 40%
- Biofilters | 40%
- Methane-recovery anaerobic digester systems | 40%
- Air flotation systems | 40%
- Air/steam stripping systems | 40%
- Urea Hydrolysis systems | 40%
- Marine outfall systems | 40%
- Centrifuge for dewatering sludge | 40%
- Rotating biological contractor or bio-disc | 40%
- Ion exchange resin column | 40%
- Activated carbon column | 40%
Solid Waste Control Equipment:
- Caustic/lime/chrome/mineral/cryolite recovery systems | 40%
- Solid waste recycling and resource recovery systems | 40%
Life Saving Medical Equipment:
- D.C. Defibrillators for internal use and pace makers | 40%
- Haemodialysors | 40%
- Heart lung machine | 40%
- Cobalt Therapy Unit | 40%
- Colour Doppler | 40%
- SPECT Gamma Camera | 40%
- Vascular Angiography System including Digital Subtraction Angiography | 40%
- Ventilator used with anaesthesia apparatus | 40%
- Magnetic Resonance Imaging System | 40%
- Surgical Laser | 40%
- Ventilator other than those used with anaesthesia | 40%
- Gamma knife | 40%
- Bone Marrow Transplant Equipment | 40%
- Fibre optic endoscopes | 40%
- Laparoscope (single incision) | 40%
Energy Saving Devices:
- Specialised boilers and furnaces | 40%
- Instrumentation and monitoring systems | 40%
- Waste heat recovery equipment | 40%
- Co-generation systems | 40%
- Electrical equipment | 40%
- Burners | 40%
- Other energy saving equipment | 40%
Renewable Energy Devices:
- Flat plate solar collectors | 40%
- Other renewable energy devices | 40%
Aircraft and Aeroengines:
- Aeroplanes - Aeroengines | 40%
DSIR-Certified Technology-Based Plant
New machinery or plant installed on or after 1st April 1987 for manufacturing using technology developed in government-financed laboratories, public sector companies, universities, or institutions recognized by the Secretary, Department of Scientific and Industrial Research (DSIR) qualifies for 40% WDV depreciation. This benefit is subject to:
- Acquisition of technology rights
- Furnishing of a prescribed DSIR certificate
- Exclusion of items listed in Schedule XIII
Intangible Assets (25%)
Intangible assets such as know-how, patents, copyrights, trademarks, licences, franchises, and similar business or commercial rights are eligible for depreciation at 25%.
Additional Depreciation
Section 33(8) — Additional Depreciation
Additional depreciation is an extra one-time deduction of 20% of the actual cost of eligible new plant and machinery, allowed in the year the asset is first put to use. This deduction is allowed over and above the normal depreciation.
Eligibility
Additional depreciation is available to:
- Assessees engaged in the business of manufacture or production of any article or thing
- Assessees engaged in the business of generation, transmission, or distribution of power
180-Day Rule
If the new plant/machinery is put to use for less than 180 days in the year of acquisition, only 50% of additional depreciation (i.e., 10%) is allowed in that year. The remaining 10% is allowed in the immediately succeeding year.
Conditions
Additional depreciation is not available to businesses that opt for concessional tax rates under certain provisions. Additionally, the machinery or plant must not be:
- Used either within or outside India before its installation
- Installed in any office premises or residential accommodation
- In the nature of office appliances or road transport vehicle
- An asset on which the whole of the actual cost is allowed as a deduction
The 180-Day Rule — Section 33(4)
General Rule
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.
Example
If a computer (40% rate) is purchased in December, it will get only 20% depreciation in the first year. Businesses should plan purchases before 30th September to claim full depreciation.
Depreciation Cap for Concessional Tax Regimes
Rule 25(2) — 40% Cap
For specified taxpayers, the depreciation allowance shall not exceed 40% of the WDV. This applies to:
- Domestic companies opting for concessional tax regimes under Sections 199(3), 200(5) or 202(2)
- Individuals, HUFs, AOPs, BOIs and artificial juridical persons taxable under Section 202(1)
- Resident cooperative societies opting under Sections 203(5) or 204(2)
Practical Compliance for Manufacturing Businesses
1. Identify the Block of Assets
- Group assets of the same class with the same depreciation rate
- Maintain records of assets in each block
2. Calculate Depreciation
- Calculate depreciation on WDV at the prescribed rate
- Apply the 180-day rule if applicable
- Claim additional depreciation if eligible
3. Maintain Records
- Maintain records of asset acquisition and installation
- Maintain records of depreciation calculations
- Maintain records of usage (especially for the 180-day rule)
4. File Tax Returns
- 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 depreciation for manufacturing plant and machinery. Our direct tax experts help manufacturing businesses understand the depreciation rules, calculate depreciation 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 depreciation or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex depreciation framework for manufacturing plant and machinery requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Depreciation Computation: Assistance with accurate depreciation calculation
- Asset Classification: Guidance on block of assets classification
- Compliance Review: Review of depreciation compliance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your depreciation matters.