The Block of Assets Method under the Income-tax Act
Indian income tax law computes depreciation not asset-by-asset but on a 'block of assets' basis — all assets of a similar nature attracting the same depreciation rate (e.g. plant & machinery at 15%, buildings at 10%, computers at 40%) are grouped into a single block with one aggregate WDV, carried forward from the Income-tax Act 1961 architecture into the 2025 Act framework.
The opening WDV of a block for the year is increased by the actual cost of any new assets acquired and put to use during the year, and decreased by the sale proceeds (moneys payable) of any assets sold, discarded, or destroyed during the year — the block itself, not individual assets, is what gets depreciated.
The 'half-year rule' (also called the 180-day rule) restricts depreciation to 50% of the normal rate for any asset acquired and put to use for less than 180 days in the financial year. An asset added in the second half of the year (roughly after early October, depending on the exact FY calendar) is only eligible for half the block's normal depreciation rate on its addition.
If the block's WDV becomes nil or negative after deducting sale proceeds (i.e., the entire block is sold for more than its WDV), a short-term capital gain arises on the excess and no depreciation is claimed for the block that year. If the block still holds assets but its WDV falls below the sale proceeds threshold, similar short-term gain treatment applies to the excess only.
Worked Example: Plant & Machinery Block (15% Rate)
A manufacturing business has an opening WDV of ₹20,00,000 for its plant & machinery block, purchases new machinery worth ₹6,00,000 in October (less than 180 days' use), and sells old machinery for ₹2,00,000 during the year.
Frequently Asked Questions (FAQs)
What is the 180-day (half-year) rule in depreciation?
Any asset acquired and put to use for less than 180 days in the financial year is eligible for depreciation at only 50% of the block's normal rate for that year. The full rate applies from the following year onward once the asset has been part of the block for a complete year.
How is depreciation calculated when an entire block is sold?
If sale proceeds exceed the block's WDV (including any additions), the excess is taxed as short-term capital gain and no depreciation is allowed for that block in the year. If the block still has a positive WDV after the sale, normal block depreciation continues on the remaining balance.
Is depreciation calculated per asset or per block?
Per block. All assets attracting the same prescribed rate are pooled into a single block of assets, and depreciation is computed on the block's aggregate WDV, not on each individual asset separately — this is a defining feature of Indian income tax depreciation versus company-law (Schedule II) depreciation.
What are the standard depreciation rates for common asset blocks?
Common rates include: buildings (residential) 5%, buildings (other) 10%, furniture & fittings 10%, plant & machinery (general) 15%, motor vehicles 15% (30% for vehicles used in a hiring business), computers and computer software 40%. Rates are prescribed under the Income-tax Rules and carried forward into the 2025 Act framework.
Can additional depreciation be claimed on new plant and machinery?
Yes, subject to conditions (primarily for manufacturing/power generation businesses), an additional depreciation of 20% (10% if put to use for less than 180 days, with the balance 10% allowed in the following year) can be claimed over and above normal depreciation on new plant & machinery.