Infrastructure facilities, including water supply and treatment systems, are eligible for accelerated depreciation under the Direct Tax Code (DTC) 2025. The depreciation schedule provides a higher rate of 40% for certain infrastructure assets, including buildings for installing machinery and plant forming part of water supply projects or water treatment systems. This guide analyses the depreciation rates and eligibility conditions for infrastructure facilities.
The Depreciation Framework for Infrastructure Facilities
Section 33 — Deduction for Depreciation
Section 33 provides for deduction in respect of depreciation of tangible and intangible assets used for business or profession.
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.
Section 33(2) — Power Generation and Infrastructure Assets
For assets of an undertaking engaged in generation or generation and distribution of power, or for assets forming part of a water supply project or water treatment system that is put to use for the purpose of business of providing infrastructure facilities under Section 80-IA(4)(i) of the Income-tax Act, 1961, the deduction in respect of depreciation shall be such percentage of its actual cost to the assessee, as may be prescribed.
Infrastructure Facility Depreciation Rates
Building for Water Supply/Treatment — 40%
Buildings for installing machinery and plant forming part of a water supply project or water treatment system which is put to use for the purpose of business of providing infrastructure facilities under Section 80-IA(4)(i) of the Income-tax Act, 1961 are eligible for depreciation at 40%.
Plant and Machinery — 40%
Machinery and plant acquired and installed on or after 1st September 2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility under Section 80-IA(4)(i) of the Income-tax Act, 1961 are eligible for depreciation at 40%.
General Infrastructure Buildings — 10%
Buildings other than those used mainly for residential purposes and not covered by the 40% rate are eligible for depreciation at 10%.
Eligibility Conditions
1. Infrastructure Facility Status
The asset must form part of an infrastructure facility as defined in Section 80-IA(4)(i) of the Income-tax Act, 1961 (as it existed prior to its repeal).
2. Water Supply or Treatment System
The asset must be part of a water supply project or water treatment system.
3. Put to Use for Business
The asset must be put to use for the purpose of business of providing infrastructure facilities.
4. Acquisition Date — Plant and Machinery
For machinery and plant, the asset must be acquired and installed on or after 1st September 2002.
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 (i.e., 20% instead of 40%).
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.
Option for Power Generation Assets
The undertaking specified in Section 33(2) may, at its option, be allowed depreciation under sub-rule (1) read with Appendix I instead of the depreciation specified in Appendix II. Once exercised, the option is final and shall apply to all subsequent tax years.
Practical Compliance
1. Identify Eligible Assets
- Determine whether the asset forms part of a water supply project or water treatment system
- Determine whether the asset is put to use for the purpose of business of providing infrastructure facilities
- For plant and machinery, determine whether the asset was acquired on or after 1st September 2002
2. Calculate Depreciation
- For buildings for installing machinery and plant: 40%
- For plant and machinery: 40%
- Apply the 50% rule if the asset was used for less than 180 days
3. Maintain Records
- Maintain records of asset acquisition
- 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 infrastructure facility depreciation. Our direct tax experts help infrastructure developers and operators 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 infrastructure facility depreciation or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex infrastructure facility depreciation framework 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 eligible asset classification
- Compliance Review: Review of depreciation compliance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your infrastructure facility depreciation matters.