Depreciation under the Companies Act 2013, which is applicable from the financial year 2014-15 and thereafter, is calculated based on the useful life of assets, their cost, and residual value. The Act provides flexibility in choosing between the Written Down Value (WDV) or Straight Line Method (SLM) for depreciation calculation.
Here are the key provisions regarding depreciation under the Companies Act 2013:
- Schedule II: Schedule II of the Act contains a list of useful life according to the class of assets, and the residual value should not exceed 5% of the original cost of the asset. Companies are allowed to adopt a useful life different from what is specified in Schedule II, but any difference must be disclosed in the financial statements along with justifications supported by technical advice.
- Date of Event: When an asset is added, sold, discarded, demolished, or destroyed, the depreciation calculation should be made based on the date of the respective event. If an asset is purchased or sold, the calculation will be made according to the purchase or sale date, following a date-wise calculation.
- Depreciation Method: The method of depreciation used (WDV or SLM) must be clearly shown in the company’s accounts.
- Useful Life Disclosure: Companies must disclose the useful life of assets only when it is different from Schedule II.
- NESD Assets: For assets with “No Extra Shift Depreciation” mentioned in Schedule II, the depreciation remains the same, irrespective of the number of work shifts. For other assets used for double shifts, depreciation increases by 50%, and for triple shifts, it increases by 100% for the relevant period.
- Component Accounting: Component accounting should be applied to the entire block of assets as of April 1, 2014, if a company opts for it voluntarily, and as of April 1, 2015, it becomes mandatory. This approach cannot be restricted to only new assets acquired after the specified dates.
- Transitional Provisions: For assets existing on April 1, 2014, the date of purchase is considered, and the balance sheet value must be depreciated over the remaining useful life of the assets. If the remaining useful life is NIL, the amount over and above the residual value may be recognized in the opening balance of retained earnings or charged off to the Profit and Loss account.
- WDV Depreciation Rate: If a company uses the WDV method, a new rate for depreciation should be calculated using the formula: R = {1 – (s/c)^(1/n)} x 100 Where R is the rate of depreciation, n is the remaining useful life of the asset in years, s is the scrap value at the end of the useful life, and c is the cost of the asset or the written down value.
It’s important to note that upon transitioning to Schedule II, companies may have different depreciation rates for individual assets within the same class because each asset may have a different remaining useful life.
Depreciation rates are not provided in the Act itself. Rates are calculated based on the cost, residual value, and useful life of the specific asset, and this calculation is usually done using the WDV or SLM method as appropriate. The provided rates in the table appear to be for assets purchased after April 1, 2014, using the specified useful life and residual value, but for other cases, a depreciation calculator should be used to determine the rates.
NESD stands for No Extra Shift Depreciation.
| Nature of Assets | Useful Life | Rate [SLM] | Rate [WDV] |
| (I) Buildings [NESD] | |||
| (a) Building (other than factory buildings) RCC Frame Structure | 60 | 1.58% | 4.87% |
| (b) Building (other than factory buildings) other than RCC Frame Structure | 30 | 3.17% | 9.50% |
| (c) Factory buildings | 30 | 3.17% | 9.50% |
| (d) Fences, wells, tube wells | 5 | 19.00% | 45.07% |
| (e) Other (including temporary structure, etc.) | 3 | 31.67% | 63.16% |
| (II) Bridges, culverts, bunkers, etc. [NESD] | 30 | 3.17% | 9.50% |
| (III) Roads [NESD] | |||
| (a) Carpeted Roads | |||
| (i) Carpeted Roads – RCC | 10 | 9.50% | 25.89% |
| (ii) Carpeted Roads – other than RCC | 5 | 19.00% | 45.07% |
| (b) Non-carpeted roads | 3 | 31.67% | 63.16% |
| (IV) Plant and Machinery | |||
| (a) General rate applicable to Plant and Machinery not covered under Special Plant and Machinery | |||
| (i) Plant and Machinery other than continuous process plant not covered under specific | 15 | 6.33% | 18.10% |
| (ii) Continuous process plant for which no special rate has been prescribed under (ii) below | 8 | 11.88% | 31.23% |
| (b) Special Plant and Machinery | |||
| (i) Plant and Machinery related to production and exhibition of Motion Picture Films | |||
| 1 Cinematograph films – Machinery used in the production and exhibition of cinematograph films, recording and reproducing equipments, developing machines, printing machines, editing machines, synchronizers and studio lights | 13 | 7.31% | 20.58% |
| 2 Projecting equipment for exhibition of films | 13 | 7.31% | 20.58% |
| (ii) Plant and Machinery used in glass | |||
| 1 Plant and Machinery except direct fire glass melting furnaces – Recuperative and regenerative glass melting furnaces | 13 | 7.31% | 20.58% |
| 2 Plant and Machinery except direct fire glass melting furnaces – Moulds [NESD] | 8 | 11.88% | 31.23% |
| 3 Float Glass Melting Furnaces [NESD] | 10 | 9.50% | 25.89% |
| (iii) Plant and Machinery used in mines and quarries Portable underground machinery and earth moving machinery used in open cast mining | 8 | 11.88% | 31.23% |
| (iv) Plant and Machinery used in Telecommunications [NESD] | |||
| 1 Towers | 18 | 5.28% | 15.33% |
| 2 Telecom transceivers, switching centres, transmission and other network equipment | 13 | 7.31% | 20.58% |
| 3 Telecom – Ducts, Cables and optical fibre | 18 | 5.28% | 15.33% |
| 4 Satellites | 18 | 5.28% | 15.33% |
| (v) Plant and Machinery used in exploration, production and refining oil and gas [NESD] | |||
| 1 Refineries | 25 | 3.80% | 11.29% |
| 2 Oil and gas assets (including wells), processing plant and facilities | 25 | 3.80% | 11.29% |
| 3 Petrochemical Plant | 25 | 3.80% | 11.29% |
| 4 Storage tanks and related equipment | 25 | 3.80% | 11.29% |
| 5 Pipelines | 30 | 3.17% | 9.50% |
| 6 Drilling Rig | 30 | 3.17% | 9.50% |
| 7 Field operations (above ground) Portable boilers, drilling tools, well-head tanks, etc. | 8 | 11.88% | 31.23% |
| 8 Loggers | 8 | 11.88% | 31.23% |
| (vi) Plant and Machinery used in generation, transmission and distribution of power [NESD] | |||
| 1 Thermal / Gas / Combined Cycle Power Generation Plant | 40 | 2.38% | 7.22% |
| 2 Hydro Power Generation Plant | 40 | 2.38% | 7.22% |
| 3 Nuclear Power Generation Plant | 40 | 2.38% | 7.22% |
| 4 Transmission lines, cables and other network assets | 40 | 2.38% | 7.22% |
| 5 Wind Power Generation Plant | 22 | 4.32% | 12.73% |
| 6 Electric Distribution Plant | 35 | 2.71% | 8.20% |
| 7 Gas Storage and Distribution Plant | 30 | 3.17% | 9.50% |
| 8 Water Distribution Plant including pipelines | 30 | 3.17% | 9.50% |
| (vii) Plant and Machinery used in manufacture of | |||
| 1 Sinter Plant | 20 | 4.75% | 13.91% |
| 2 Blast Furnace | 20 | 4.75% | 13.91% |
| 3 Coke Ovens | 20 | 4.75% | 13.91% |
| 4 Rolling mill in steel plant | 20 | 4.75% | 13.91% |
| 5 Basic Oxygen Furnace Converter | 25 | 3.80% | 11.29% |
| (viii) Plant and Machinery used in manufacture of non ferrous metals | |||
| 1 Metal pot line [NESD] | 40 | 2.38% | 7.22% |
| 2 Bauxite crushing and grinding section | 40 | 2.38% | 7.22% |
| 3 Digester Section [NESD] | 40 | 2.38% | 7.22% |
| 4 Turbine [NESD] | 40 | 2.38% | 7.22% |
| 5 Equipments for Calcinations [NESD] | 40 | 2.38% | 7.22% |
| 6 Copper Smelter [NESD] | 40 | 2.38% | 7.22% |
| 7 Roll Grinder | 40 | 2.38% | 7.22% |
| 8 Soaking Pit | 30 | 3.17% | 9.50% |
| 9 Annealing Furnace | 30 | 3.17% | 9.50% |
| 10 Rolling Mills | 30 | 3.17% | 9.50% |
| 11 Equipments for Scalping, Slitting, etc. [NSED] | 30 | 3.17% | 9.50% |
| 12 Surface Miner, Ripper Dozer, etc. used in mines | 25 | 3.80% | 11.29% |
| 13 Copper refining plant [NSED] | 25 | 3.80% | 11.29% |
| (ix) Plant and Machinery used in medical and surgical operations [NESD] | |||
| 1 Electrical Machinery, X-ray and electrotherapeutic apparatus and accessories thereto, medical, diagnostic equipments, namely, Cat-scan, Ultrasound Machines, ECG Monitors, etc. | 13 | 7.31% | 20.58% |
| 2 Other Equipments | 15 | 6.33% | 18.10% |
| (x) Plant and Machinery used in manufacture of pharmaceuticals and chemicals [NESD] | |||
| 1 Reactors | 20 | 4.75% | 13.91% |
| 2 Distillation Columns | 20 | 4.75% | 13.91% |
| 3 Drying equipments / Centrifuges and Decanters | 20 | 4.75% | 13.91% |
| 4 Vessel / Storage tanks | 20 | 4.75% | 13.91% |
| (xi) Plant and Machinery used in civil construction | |||
| 1 Concreting, Crushing, Piling Equipments and Road Making Equipments | 12 | 7.92% | 22.09% |
| 2 Heavy Lift Equipments – | |||
| – Cranes with capacity more than 100 tons | 20 | 4.75% | 13.91% |
| – Cranes with capacity less than 100 tons | 15 | 6.33% | 18.10% |
| 3 Transmission line, Tunnelling Equipments [NESD] | 10 | 9.50% | 25.89% |
| 4 Earth-moving equipments | 9 | 10.56% | 28.31% |
| 5 Others including Material Handling / Pipeline / Welding Equipments [NESD] | 12 | 7.92% | 22.09% |
| (xii) Plant and Machinery used in salt works [NESD] | 15 | 6.33% | 18.10% |
| (V) Furniture and fittings [NESD] | |||
| (a) General furniture and fittings | 10 | 9.50% | 25.89% |
| (b) Furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other education institutions, libraries, welfare centres, meeting halls, cinema houses, theatres and circuses and furniture and fittings let out on hire for used on occasion of marriages and similar functions | 8 | 11.88% | 31.23% |
| (VI) Motor Vehicles [NESD] | |||
| (a) Motor cycles, scooters and other mopeds | 10 | 9.50% | 25.89% |
| (b) Motor buses, motor lorries, motor cars and motor taxies used in a business of running them on hire | 6 | 15.83% | 39.30% |
| (c) Motor buses, motor lorries, motor cars and motor taxies other than those used in a business of running them on | 8 | 11.88% | 31.23% |
| (d) Motor tractors, harvesting combines and heavy vehicles | 8 | 11.88% | 31.23% |
| (e) Electrically operated vehicles | 8 | 11.88% | 31.23% |
| (VII) Ships [NESD] | |||
| (a) Ocean-going ships | |||
| (i) Bulk Carriers and liner vessels | 25 | 3.80% | 11.29% |
| (ii) Crude tankers, product carriers and easy chemical carriers with or without conventional | 20 | 4.75% | 13.91% |
| (iii) Chemicals and Acid Carriers | |||
| 1 With Stainless steel tanks | 25 | 3.80% | 11.29% |
| 2 With other tanks | 20 | 4.75% | 13.91% |
| (iv) Liquefied gas carriers | 30 | 3.17% | 9.50% |
| (v) Conventional large passenger vessels which are used for cruise purpose also | 30 | 3.17% | 9.50% |
| (vi) Coastal service ships of all categories | 30 | 3.17% | 9.50% |
| (vii) Offshore supply and support vessels | 20 | 4.75% | 13.91% |
| (viii) Catamarans and other high speed passenger for ships or boats | 20 | 4.75% | 13.91% |
| (ix) Drill ships | 25 | 3.80% | 11.29% |
| (x) Hovercrafts | 15 | 6.33% | 18.10% |
| (xi) Fishing vessels with wooden hull | 10 | 9.50% | 25.89% |
| (xii) Dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging | 14 | 6.79% | 19.26% |
| (b) Vessels ordinarily operating on inland waters | |||
| (i) Speed boats | 13 | 7.31% | 20.58% |
| (ii) Other vessels | 28 | 3.39% | 10.15% |
| (VIII) Aircrafts or Helicopters [NESD] | 20 | 4.75% | 13.91% |
| (IX) Railway siding, locomotives, rolling stocks, tramways and railway used by concerns, excluding railway | 15 | 6.33% | 18.10% |
| (X) Ropeway structures [NESD] | 15 | 6.33% | 18.10% |
| (XI) Office equipments [NESD] | 5 | 19.00% | 45.07% |
| (XII) Computers and data processing units [NESD] | |||
| (a) Servers and networks | 6 | 15.83% | 39.30% |
| (b) End user devices, such as, desktops, laptops, etc. | 3 | 31.67% | 63.16% |
| (XIII) Laboratory equipment [NESD] | |||
| (a) General laboratory equipment | 10 | 9.50% | 25.89% |
| (b) Laboratory equipments used in education institutions | 5 | 19.00% | 45.07% |
| (XIV) Electrical Installations and Equipment [NESD] | 10 | 9.50% | 25.89% |
| (XV) Hydraulic woks, pipelines and sluices [NESD] | 15 | 6.33% | 18.10% |
