Depreciation Calculator
Companies Act + Income Tax Act
Side-by-Side Comparison

Yes — Section 123(2) of Companies Act 2013 and Schedule II allow companies to use a different (longer) useful life provided: (1) There is technical justification based on a technical expert's report, and (2) Disclosure is made in the notes to financial statements. However, a shorter useful life than Schedule II is generally not permitted without very strong technical justification. Residual value can also differ from 5% if technically justified and disclosed. For Ind AS companies, Ind AS 16 gives full discretion to management to estimate useful life based on expected pattern of consumption — Schedule II becomes a useful guideline, not a mandate.

Under Section 32 of the Income Tax Act, if an asset is put to use for less than 180 days in the year of purchase, only 50% of the applicable depreciation rate applies for that year. The calculation: (1) If asset purchased and put to use on or before September 30 → full rate applies. (2) If asset purchased and put to use on or after October 1 → 50% of rate applies (less than 180 days use in that FY). This rule applies in the first year only — subsequent years always attract full rate regardless of when the asset was acquired. Companies Act does not follow this convention — it computes pro-rata on exact days basis.

Under IT Act, all assets in the same depreciation rate category are grouped into a block of assets. Key implications: (1) You cannot compute depreciation per asset — only per block. (2) When an asset is sold, the sale proceeds reduce the block's WDV (not credited to profit). (3) If block WDV becomes negative (sale > WDV), a short-term capital gain (STCG) arises. (4) If the entire block is sold, gain/loss is treated as STCG/STCL. (5) Block depreciation continues even if individual assets within the block are fully depreciated. For companies tracking assets individually for Companies Act, a reconciliation with IT Act blocks is prepared separately. TAXAJ maintains parallel registers for CA Act and IT Act purposes.

Under Ind AS 12 (and AS-22), temporary differences between the carrying amount of an asset in financial statements and its tax base give rise to deferred tax. For depreciation: (1) CA Act WDV > IT Act WDV → Carrying amount lower than tax base → Deductible temporary difference → Deferred Tax Asset (DTA). (2) IT Act WDV > CA Act WDV → Tax base lower → Taxable temporary difference → Deferred Tax Liability (DTL). DTL is the most common case (IT Act depreciation is typically higher due to higher prescribed rates). Deferred tax balances reverse over the asset's life and must be trued-up annually. TAXAJ prepares AS-22 / Ind AS 12 deferred tax schedules with opening balance, movement, and closing balance for audit.

The CA Act WDV rate is derived mathematically from the useful life using the formula: WDV Rate = 1 − (Residual Value / Original Cost)^(1/Useful Life). Using standard 5% residual value: WDV Rate = 1 − (0.05)^(1/n) where n = useful life in years. For example, for 10-year useful life: WDV rate = 1 − (0.05)^(0.1) = 1 − 0.7411 = 25.89%. This means: applying 25.89% WDV each year, the asset reaches 5% residual value exactly at the end of 10 years. The IT Act WDV rates are independently prescribed by the CBDT and are not mathematically derived from useful life — they are policy rates set to provide appropriate tax incentive.