Learning how to calculate depreciation for a small business in India is one of the most valuable accounting skills you can develop as an entrepreneur. Every piece of equipment, furniture, vehicle, or computer your business owns loses value over time. Consequently, you can claim this loss as a tax deduction — and reduce your income tax liability every year.
Moreover, depreciation is not optional. The Income Tax Act 1961 and the Companies Act 2013 both mandate depreciation on all fixed assets. Therefore, if you skip it, you may either overpay your taxes or face issues during an income tax assessment. Furthermore, banks and investors scrutinise depreciation figures when reviewing your balance sheet for loans or funding.
In this guide, we explain exactly how to calculate depreciation for a small business in India — covering both methods, official income tax rates, step-by-step worked examples in INR, a complete rate table, and the most common mistakes to avoid.
Quick Answer: To calculate depreciation for a small business in India, use the Written Down Value (WDV) method under the Income Tax Act. Apply the prescribed rate to the opening WDV of each asset block. For example, a computer worth ₹1,00,000 at 40% WDV rate attracts ₹40,000 depreciation in Year 1. The reduced WDV of ₹60,000 becomes the base for Year 2 — and so on until the asset is fully depreciated.
What You Need Before You Calculate Depreciation for a Small Business in India
Before calculating depreciation, you must gather accurate asset information. Without correct data, your depreciation figures will be wrong — and so will your tax filing. Therefore, prepare the following for every fixed asset in your business:
- Asset description — The exact name of the asset (e.g., Dell Laptop, Mahindra Bolero, Godrej Almirah)
- Date of purchase — The exact date you bought or commissioned the asset. This determines whether you get full or half depreciation in the first year
- Cost of acquisition — The total purchase price including GST paid (if input tax credit is not claimed), freight, installation, and any other costs to bring the asset to its working condition
- Asset block — Under the Income Tax Act, all assets are grouped into blocks based on type and depreciation rate. You need to identify the correct block for each asset
- Opening WDV — The Written Down Value of the asset at the start of the financial year (i.e., the closing WDV from the previous year)
- Additions and disposals — Any new assets purchased during the year and any old assets sold or scrapped during the year, as both affect the block WDV
Pro Tip: Maintain a Fixed Asset Register from the very first year of your business. Record each asset’s purchase date, cost, block, opening WDV, depreciation rate, depreciation charged, and closing WDV. Consequently, your annual depreciation calculation takes minutes — not hours. Tally Prime and Zoho Books generate this register automatically.
Step 1 – Understand the Two Methods Used to Calculate Depreciation for a Small Business in India
India uses two primary depreciation methods — one for income tax purposes and one for company financial reporting. As a small business owner, you need to understand both. However, for most tax purposes, the WDV method applies:
| Method | Full Name | Used Under | How It Works | Best For |
| WDV | Written Down Value Method | Income Tax Act 1961 | Apply a fixed % rate on the reducing balance each year. Consequently, depreciation is higher in early years and reduces over time | All small businesses for income tax filing — this is the default method in India |
| SLM | Straight Line Method | Companies Act 2013 (Schedule II) | Divide the asset cost equally over its useful life. As a result, depreciation is the same amount every year | Private Limited and Public Limited Companies for their statutory financial statements |
Therefore, if you run a sole proprietorship, partnership, or LLP, use the WDV method for all your income tax depreciation calculations. However, if you run a Private Limited Company, you must use SLM for your Companies Act financial statements — and additionally use WDV for your income tax return. Consequently, Pvt Ltd companies often maintain two sets of depreciation workings.
Step 2 – How to Calculate Depreciation for a Small Business Using the WDV Method (Income Tax Act)
The Written Down Value method is the most important depreciation calculation for small businesses in India. Here is the exact formula and a step-by-step worked example using real INR figures:
WDV Depreciation Formula
Depreciation = Opening WDV × Depreciation Rate ÷ 100
Moreover, if an asset is purchased during the year, the Income Tax Act applies a 50% depreciation rule. Specifically, if an asset is put to use for less than 180 days in a financial year, you can only claim 50% of the normal depreciation. Therefore, always check the date of purchase before calculating first-year depreciation.
WDV Worked Example: Computer for a Small Business in India
| Financial Year | Opening WDV (₹) | Depreciation @ 40% (₹) | Closing WDV (₹) |
| Year 1 (Purchased 1 Apr 2023 — full year) | 1,00,000 | 40,000 | 60,000 |
| Year 2 (2024–25) | 60,000 | 24,000 | 36,000 |
| Year 3 (2025–26) | 36,000 | 14,400 | 21,600 |
| Year 4 (2026–27) | 21,600 | 8,640 | 12,960 |
| Year 5 (2027–28) | 12,960 | 5,184 | 7,776 |
As you can see, depreciation is highest in Year 1 (₹40,000) and reduces every subsequent year. Consequently, your tax savings are greatest when the asset is new, which is one reason businesses often prefer to purchase new assets near the start of the financial year (April–May) rather than near the year-end.
First-Year Depreciation: The 50% Rule Explained
If you purchase an asset after 3 October in any financial year (i.e., it is used for fewer than 180 days before 31 March), you can only claim 50% of the normal depreciation rate in that first year. For example, a laptop costing ₹1,00,000 purchased on 15 November will attract depreciation at 20% (50% of 40%) in Year 1 — resulting in ₹20,000 depreciation instead of ₹40,000. Therefore, plan major asset purchases in the first half of the financial year to maximise your depreciation claim.
Step 3 – How to Calculate Depreciation for a Small Business Using the SLM Method (Companies Act)
The Straight Line Method applies to Private Limited and Public Limited companies under Schedule II of the Companies Act 2013. Unlike WDV, SLM spreads the cost evenly over the asset’s useful life. Here is the formula and a worked example:
SLM Depreciation Formula
Annual Depreciation = (Cost of Asset – Residual Value) ÷ Useful Life (years)
SLM Worked Example: Machinery for a Small Manufacturing Business
| Detail | Amount (₹) |
| Cost of Machinery | 5,00,000 |
| Residual / Scrap Value (5%) | 25,000 |
| Depreciable Amount | 4,75,000 |
| Useful Life (as per Schedule II) | 15 years |
| Annual SLM Depreciation | 31,667 per year |
| Depreciation Rate (SLM %) | 6.33% per year |
As a result of using SLM, the company charges exactly ₹31,667 in depreciation every year for 15 years. Consequently, this creates a more stable and predictable profit figure, which is why the Companies Act mandates SLM for financial statements. However, this also means lower depreciation in early years compared to WDV — and therefore higher taxable profit under the Companies Act method.
Step 4 – Official Depreciation Rates for Small Business Assets in India (Income Tax Act 2026)
The Income Tax Act groups all assets into blocks based on the type of asset. Each block has a prescribed depreciation rate. Here are the most important depreciation rates for common small business assets in India:
| Asset Type / Block | Examples | WDV Depreciation Rate | Key Notes |
| Buildings — Residential | Residential accommodation for employees | 5% | Low rate; applies to permanent structures used for residential purposes |
| Buildings — Commercial / Factory | Office building, factory shed, warehouse | 10% | Applies to all commercial premises and factory buildings owned by the business |
| Furniture & Fittings | Chairs, tables, shelves, counters, display units | 10% | Covers all furniture. Temporary partitions and office fit-outs also included |
| Plant & Machinery (General) | Manufacturing equipment, tools, and generators | 15% | Applies to most general plant and machinery not specified elsewhere |
| Computers & Software | Laptops, desktops, tablets, servers, printers, ERP software | 40% | Highest rate for tangible assets — reflects rapid technological obsolescence |
| Motor Vehicles — Non-commercial | Cars, jeeps, and SUVs used for business | 15% | Applicable to personal motor vehicles used for business purposes |
| Motor Vehicles — Commercial | Delivery trucks, tempos, and autos used for goods transport | 30% | Higher rate for commercial vehicles due to intensive use and faster wear |
| Motor Cars (acquired on or after 23 Aug 2019) | New passenger cars | 15% | Standard rate continues to apply post the 2019 amendment |
| Intangible Assets | Patents, trademarks, licences, copyrights, goodwill | 25% | All intangible assets purchased by the business fall in this block |
| Ships | Vessels used for business transport | 20% | Applies to water transport businesses operating in Indian waters |
Important Note: Depreciation rates under the Income Tax Act can be amended by the annual Finance Act. Therefore, always verify the current applicable rates on the Income Tax India website (incometax.gov.in) or consult your Chartered Accountant before filing your ITR. The rates above reflect the 2025–26 financial year.
Step 5 – How the Block of Assets System Works for Small Businesses in India
The Income Tax Act uses a unique ‘block of assets’ system for WDV depreciation. This means you do not calculate depreciation on each asset individually. Instead, you group all assets with the same depreciation rate into a single block and calculate depreciation on the combined block WDV. Here is how it works:
Block of Assets Worked Example for a Small Retail Business
| Step | Calculation | Amount (₹) |
| Opening WDV of Furniture Block (1 Apr 2025) | Balance from the previous year | 1,20,000 |
| Add: New furniture purchased during 2025–26 | New shelving units were bought in June 2025 | 40,000 |
| Less: Sale proceeds of old furniture scrapped | The old counter was sold for scrap | 5,000 |
| Net WDV before depreciation | 1,20,000 + 40,000 − 5,000 | 1,55,000 |
| Depreciation @ 10% on ₹1,55,000 | 1,55,000 × 10 ÷ 100 | 15,500 |
| Closing WDV of Furniture Block (31 Mar 2026) | 1,55,000 − 15,500 | 1,39,500 |
As a result, you carry forward the closing WDV of ₹1,39,500 as the opening WDV for the 2026–27 financial year. Furthermore, whenever you add new assets to the same block during the year, their cost is simply added to the block WDV before applying the depreciation rate. Consequently, the block system simplifies calculations significantly for businesses with multiple assets of the same type.
Step 6 – How to Record and Calculate Depreciation in Tally Prime and Other Software
Most Indian small businesses use Tally Prime, Zoho Books, or QuickBooks India to manage their accounts. Furthermore, these tools automate depreciation calculations once you set up your fixed assets correctly. Here is how to calculate depreciation for a small business in India in the most popular accounting tools:
Setting Up Depreciation in Tally Prime
- Create a Fixed Assets ledger group for each asset (e.g., ‘Computer — Dell Laptop’) under the ‘Fixed Assets’ group
- Record the purchase entry by debiting the Fixed Assets ledger and crediting your bank or supplier account
- At year-end, create a Depreciation ledger under the ‘Indirect Expenses’ group
- Pass a journal entry: Debit ‘Depreciation A/c’ and Credit ‘Accumulated Depreciation A/c’ for the calculated amount
- Tally Prime’s Fixed Asset module (available in Tally Prime 2.0+) can automate WDV and SLM calculations once you enter the asset cost, block, and rate
Using Zoho Books for Depreciation in India
- Add each fixed asset under the ‘Fixed Assets’ module in Zoho Books
- Enter the asset cost, depreciation method (WDV or SLM), and applicable rate
- Zoho Books automatically calculates and posts monthly or annual depreciation journal entries
- The software generates a Fixed Asset Register and depreciation schedule that you can export directly for your CA or income tax filing
Software Tip: Even if you use Tally or Zoho Books for daily accounting, always get your depreciation schedule reviewed by a CA before filing your Income Tax Return. Specifically, check that asset blocks are correctly classified and that the 50% rule for newly purchased assets has been correctly applied.
Conclusion
Calculating depreciation for a small business in India is a structured process that directly reduces your tax liability every year. Furthermore, it ensures your balance sheet reflects the true value of your assets, which builds credibility with banks, investors, and the Income Tax Department.
To summarise the complete step-by-step process from this guide:
- Gather your asset data — Purchase date, cost, asset block, and opening WDV for every fixed asset in your business
- Choose the correct method — WDV for income tax (all businesses); SLM for Companies Act financials (Pvt Ltd companies only)
- Apply the correct depreciation rate — Use the Income Tax Act block rates: 40% for computers, 15% for plant and machinery, 10% for furniture, 30% for commercial vehicles
- Apply the 50% rule — If an asset is purchased after 3 October and used for fewer than 180 days, claim only 50% of the normal rate in Year 1
- Use the block of assets system — Group all assets with the same rate into one block. Add purchases, deduct sale proceeds, then apply the rate on the net block WDV
- Record in Tally or Zoho Books — Automate depreciation entries using your accounting software. Moreover, get your depreciation schedule reviewed by a CA before ITR filing
As a result of claiming correct depreciation every year, your small business saves thousands of rupees in income tax — legally and without any complex planning. Therefore, set up your Fixed Asset Register today, classify your assets into the correct blocks, and ensure you never miss a depreciation deduction again.
Ready to Start? Open your Fixed Asset Register in Tally Prime or Zoho Books today. List every business asset with its purchase date, cost, and block. Apply the correct WDV rate from this guide. Then share the depreciation schedule with your CA before 31 July — and claim every rupee of depreciation you are entitled to.
FAQs
Que 1. What is the depreciation rate for computers for small businesses in India?
Ans. The depreciation rate for computers, laptops, tablets, and peripherals is 40% under the WDV method as per the Income Tax Act. Consequently, a computer worth ₹1,00,000 attracts ₹40,000 depreciation in Year 1, reducing the Written Down Value to ₹60,000 for the next year. Moreover, software purchased separately also qualifies for the 40% block rate.
Que 2. What is the difference between WDV and SLM depreciation in India?
Ans. WDV (Written Down Value) method applies a fixed rate on the reducing balance each year, resulting in higher depreciation in early years. SLM (Straight Line Method) spreads the cost equally over the asset’s useful life, resulting in the same depreciation amount every year. Furthermore, WDV is mandatory for income tax purposes under the Income Tax Act, while SLM is required for company financial statements under Schedule II of the Companies Act 2013.
Que 3. Can a sole proprietor claim depreciation in India?
Ans. Yes. Sole proprietors can claim depreciation under Section 32 of the Income Tax Act on all fixed assets used for business purposes. Furthermore, depreciation reduces your net business income — and therefore lowers your income tax liability. Consequently, claiming depreciation is one of the most effective and fully legal tax-saving strategies available to Indian sole proprietors and small business owners.
Que 4. What happens if I do not claim depreciation in my income tax return?
Ans. If you do not claim depreciation in a given year, you still lose that year’s depreciation deduction permanently — you cannot carry it forward or claim it in a future year. Moreover, the Income Tax Department may disallow related expenses if your asset values appear inflated without depreciation. Therefore, always claim the full allowable depreciation every year without fail.
Que 5. How do I calculate depreciation on a vehicle used for my small business in India?
Ans. For a non-commercial vehicle (car or SUV) used for business, apply a 15% WDV rate under the Income Tax Act. For example, a car purchased for ₹8,00,000 attracts ₹1,20,000 depreciation in Year 1 (assuming purchase before 3 October). However, if the car is also used for personal purposes, you can only claim the proportion of depreciation corresponding to business use. Consequently, maintain a vehicle log to support your business use percentage during any income tax assessment.
