Calculate Depreciation as per Companies Act, 2013
Written by
CA Raj Kumar -
Updated on June 15, 2024.
Estimated Reading Time: 9 minutes.
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Corporate Compliances Financial Reporting
Depreciation as we know is a reduction in value of asset put to use from wear and tear. Over the time, value of asset diminishes. It happens because the asset wears and tears out from its use.
Every year we record this reduction in our accounting books. It affects the valuation of assets in our financial statements. As Fixed Asset forms a major part in our net worth valuation, it needs outmost care. Also, there are provisions in Companies Act that needs calculation of correct depreciation. For e.g., section 123 requires making provisions for depreciation before declaring dividends.
Provisions on calculation of depreciation are in Schedule II of the Companies Act. It provides useful life for different assets for calculating the depreciation. It doesn’t bind us with any specific method of depreciation. In fact, it is liberal to allow us any method to calculate depreciation. All we need is to use the useful life from this schedule to calculate the depreciation. If useful life of asset is different from schedule II, we have to disclose it in our Financial Statement. Schedule II contains 3 Parts:
- Part A – Definition of Depreciation, selection of useful life and valuation of scrap value
- Part B – Useful life or Scrap Value given by any other Statutory Law to prevail over this Schedule
- Part C – Useful Life of Assets
You can read the full legal text of the Companies Act from this link of Ministry of Corporate Affairs Website. This article summarises the Schedule II briefly. It explains the procedure for calculation of Depreciation under the Companies Act, 2013.
How to Calculate Depreciation under the Companies Act, 2013:
Use these steps to calculate Depreciation under the Companies Act, 2013:
- Decide method of Depreciation
Companies Act is silent on method of depreciation. But it is more useful to use Written Down Method (WDV) as we have to use this method for Income-tax purposes. In Income-tax Act, we have the concept of Asset Blocks for which we use WDV Method to compute depreciation. Read our article – “how to calculate Depreciation under WDV Method to learn this method“.
- Use useful life from Part C of Schedule II
Once we decide on method of calculation, we have to take useful life from Part C of the schedule. You can take any other useful life also. But only with proper justification and technical reports. If you use any other useful life, you have to disclose it in your financial statements. You can view useful life from schedule II, here.
- Use residual value of up to 5 percent (max)
For our calculation, we have to use residual value of up to 5 percent (max) only. If we use more than this, we have to disclose it in our financial statements. Such choice of more than 5 percent need justification supported with technical advice.
- For Intangibles, apply Ind AS
For intangibles, we need to apply Ind AS. If Ind AS is not applicable on the company, apply Accounting Standards (AS). Companies Accounting Standards (Rules), 2006 covers these AS
- For Special Intangible Assets use Amortisation
Use Amortisation for intangible asset (Toll Roads) created under ‘Build, Operate and Transfer’. Use it also for ‘Build, Own, Operate and Transfer’ or any other form of public private partnership. Formula given for amortisation is – $latex Amortisation Rate = \frac{Amortisation Amount}{Cost of Intangible Assets (A)}\times{100} $ $latex Amortisation Amount = {Cost of Intangible Asset (A)} \times (\frac{Actual Revenue for the year (B)}{Projected Revenue (C)}) $
Some Important Points-
- If part of Asset is of significant value, calculate separate depreciation for the part. For e.g., Packaging Machine of ₹ 1 crore has book value of 10 lakh in 9th year of its use and a major part is replaced for ₹ 80 lakh. Here, replacement part is of significant amount. Also, it’s useful life will be different from the machine as it is new and is of significant value. Hence, it’s depreciation must be calculated separately with its own separate useful life.
- Except for assets not permitted for part-shifts, other assets can be used in double or triple shifts. Depreciation for double shift will increase by 50% and for triple shift by 100%.
- NESD in below Table stands for No Extra Shift Depreciation. That is even if used for many shifts, there will be no extra depreciation for these assets.
- If during Financial Year any addition of asset is done, or sold or demolished, then pro rata basis should be used. That is depreciation must be calculated for the number of days used in that year.
Part C – Useful life
| Nature of Assets | Useful Life | SLM Rate | WDV Rate |
|---|---|---|---|
| I. Buildings [NESD] | |||
| (a) Buildings (other than factory buildings) RCC Frame Structure | 60 Years | 1.58% | 4.9% |
| (b) Buildings (other than factory buildings) other than RCC Frame Structure | 30 Years | 3.17% | 9.5% |
| (c) Factory buildings | 30 Years | 3.17% | 9.5% |
| (d) Fences, wells, tube wells | 5 Years | 19.00% | 45.1% |
| (e) Others (including temporary structure, etc.) | 3 Years | 31.67% | 63.2% |
| II. Bridges, culverts, bunders, etc. [NESD] | 30 Years | 3.17% | 9.5% |
| III. Roads [NESD] | |||
| (a) Carpeted roads | |||
| (i) Carpeted Roads-RCC | 10 Years | 9.50% | 25.9% |
| (ii) Carpeted Roads-other than RCC | 5 Years | 19.00% | 45.1% |
| (b) Non-carpeted roads | 3 Years | 31.67% | 63.2% |
| IV. Plant and Machinery | |||
| (i) General rate applicable to plant and machinery not covered under special plant and machinery | |||
| (a) Plant and Machinery other than continuous process plant not covered under specific industries | 15 Years | 6.33% | 18.1% |
| 1[(b) continuous process plant for which no special rate has been prescribed under (ii) below [NESD]] | 25 Years | 3.80% | 11.3% |
| (ii) Special Plant and Machinery | |||
| (a) 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 except bulbs | 13 Years | 7.31% | 20.6% |
| 2. Projecting equipment for exhibition of films | 13 Years | 7.31% | 20.6% |
| (b) Plant and Machinery used in glass manufacturing | |||
| 1. Plant and Machinery except direct fire glass melting furnaces — Recuperative and regenerative glass melting furnaces | 13 Years | 7.31% | 20.6% |
| 2. Plant and Machinery except direct fire glass melting furnaces — Moulds [NESD] | 8 Years | 11.88% | 31.2% |
| 3. Float Glass Melting Furnaces [NESD] | 10 Years | 9.50% | 25.9% |
| (c) Plant and Machinery used in mines and quarries—Portable underground machinery and earth moving machinery used in open cast mining [NESD] | 8 Years | 11.88% | 31.2% |
| (d) Plant and Machinery used in Telecommunications [NESD] | |||
| 1. Towers | 18 Years | 5.28% | 15.3% |
| 2. Telecom transceivers, switching centres, transmission and other network equipment | 13 Years | 7.31% | 20.6% |
| 3. Telecom—Ducts, Cables and optical fibre | 18 Years | 5.28% | 15.3% |
| 4. Satellites | 18 Years | 5.28% | 15.3% |
| (e) Plant and Machinery used in exploration, production and refining oil and gas [NESD] | |||
| 1. Refineries | 25 Years | 3.80% | 11.3% |
| 2. Oil and gas assets (including wells), processing plant and facilities | 25 Years | 3.80% | 11.3% |
| 3. Petrochemical Plant | 25 Years | 3.80% | 11.3% |
| 4. Storage tanks and related equipment | 25 Years | 3.80% | 11.3% |
| 5. Pipelines | 30 Years | 3.17% | 9.5% |
| 6. Drilling Rig | 30 Years | 3.17% | 9.5% |
| 7. Field operations (above ground) Portable boilers, drilling tools, well-head tanks, etc. | 8 Years | 11.88% | 31.2% |
| 8. Loggers | 8 Years | 11.88% | 31.2% |
| (f) Plant and Machinery used in generation, transmission and distribution of power [NESD] | |||
| 1. Thermal/ Gas/ Combined Cycle Power Generation Plant | 40 Years | 2.38% | 7.2% |
| 2. Hydro Power Generation Plant | 40 Years | 2.38% | 7.2% |
| 3. Nuclear Power Generation Plant | 40 Years | 2.38% | 7.2% |
| 4. Transmission lines, cables and other network assets | 40 Years | 2.38% | 7.2% |
| 5. Wind Power Generation Plant | 22 Years | 4.32% | 12.7% |
| 6. Electric Distribution Plant | 35 Years | 2.71% | 8.2% |
| 7. Gas Storage and Distribution Plant | 30 Years | 3.17% | 9.5% |
| 8. Water Distribution Plant including pipelines | 30 Years | 3.17% | 9.5% |
| (g) Plant and Machinery used in manufacture of steel | |||
| 1. Sinter Plant | 20 Years | 4.75% | 13.9% |
| 2. Blast Furnace | 20 Years | 4.75% | 13.9% |
| 3. Coke ovens | 20 Years | 4.75% | 13.9% |
| 4. Rolling mill in steel plant | 20 Years | 4.75% | 13.9% |
| 5. Basic oxygen Furnace Converter | 25 Years | 3.80% | 11.3% |
| (h) Plant and Machinery used in manufacture of non-ferrous metals | |||
| 1. Metal pot line [NESD] | 40 Years | 2.38% | 7.2% |
| 2. Bauxite crushing and grinding section [NESD] | 40 Years | 2.38% | 7.2% |
| 3. Digester Section [NESD] | 40 Years | 2.38% | 7.2% |
| 4. Turbine [NESD] | 40 Years | 2.38% | 7.2% |
| 5. Equipments for Calcination [NESD] | 40 Years | 2.38% | 7.2% |
| 6. Copper Smelter [NESD] | 40 Years | 2.38% | 7.2% |
| 7. Roll Grinder | 40 Years | 2.38% | 7.2% |
| 8. Soaking Pit | 30 Years | 3.17% | 9.5% |
| 9. Annealing Furnace | 30 Years | 3.17% | 9.5% |
| 10. Rolling Mills | 30 Years | 3.17% | 9.5% |
| 11. Equipments for Scalping, Slitting , etc. [NESD] | 30 Years | 3.17% | 9.5% |
| 12. Surface Miner, Ripper Dozer, etc., used in mines | 25 Years | 3.80% | 11.3% |
| 13. Copper refining plant [NESD] | 25 Years | 3.80% | 11.3% |
| (i) 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 Years | 7.31% | 20.6% |
| 2. Other Equipments | 15 Years | 6.33% | 18.1% |
| (j) Plant and Machinery used in manufacture of pharmaceuticals and chemicals [NESD] | |||
| 1. Reactors | 20 Years | 4.75% | 13.9% |
| 2. Distillation Columns | 20 Years | 4.75% | 13.9% |
| 3. Drying equipments/Centrifuges and Decanters | 20 Years | 4.75% | 13.9% |
| 4. Vessel/storage tanks | 20 Years | 4.75% | 13.9% |
| (k) Plant and Machinery used in civil construction | |||
| 1. Concreting, Crushing, Piling Equipments and Road Making Equipments | 12 Years | 7.92% | 22.1% |
| 2. Heavy Lift Equipments— | |||
| Cranes with capacity of more than 100 tons | 20 Years | 4.75% | 13.9% |
| Cranes with capacity of less than 100 tons | 15 Years | 6.33% | 18.1% |
| 3. Transmission line, Tunneling Equipments [NESD] | 10 Years | 9.50% | 25.9% |
| 4. Earth-moving equipments | 9 Years | 10.56% | 28.3% |
| 5. Others including Material Handling /Pipeline/Welding Equipments [NESD] | 12 Years | 7.92% | 22.1% |
| (l) Plant and Machinery used in salt works [NESD] | 15 Years | 6.33% | 18.1% |
| V. Furniture and fittings [NESD] | |||
| (i) General furniture and fittings | 10 Years | 9.50% | 25.9% |
| (ii) Furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other educational institutions, libraries; welfare centres; meeting halls, cinema houses; theatres and circuses; and furniture and fittings let out on hire for use on the occasion of marriages and similar functions. | 8 Years | 11.88% | 31.2% |
| VI. Motor Vehicles [NESD] | |||
| 1. Motor cycles, scooters and other mopeds | 10 Years | 9.50% | 25.9% |
| 2. Motor buses, motor lorries, motor cars and motor taxies used in a business of running them on hire | 6 Years | 15.83% | 39.3% |
| 3. Motor buses, motor lorries and motor cars other than those used in a business of running them on hire | 8 Years | 11.88% | 31.2% |
| 4. Motor tractors, harvesting combines and heavy vehicles | 8 Years | 11.88% | 31.2% |
| 5. Electrically operated vehicles including battery powered or fuel cell powered vehicles | 8 Years | 11.88% | 31.2% |
| VII. Ships [NESD] | |||
| 1. Ocean-going ships | |||
| (i) Bulk Carriers and liner vessels | 25 Years | 3.80% | 11.3% |
| (ii) Crude tankers, product carriers and easy chemical carriers with or without conventional tank coatings. | 20 Years | 4.75% | 13.9% |
| (iii) Chemicals and Acid Carriers: | |||
| (a) With Stainless steel tanks | 25 Years | 3.80% | 11.3% |
| (b) With other tanks | 20 Years | 4.75% | 13.9% |
| (iv) Liquified gas carriers | 30 Years | 3.17% | 9.5% |
| (v) Conventional large passenger vessels which are used for cruise purpose also | 30 Years | 3.17% | 9.5% |
| (vi) Coastal service ships of all categories | 30 Years | 3.17% | 9.5% |
| (vii) Offshore supply and support vessels | 20 Years | 4.75% | 13.9% |
| (viii) Catamarans and other high speed passenger for ships or boats | 20 Years | 4.75% | 13.9% |
| (ix) Drill ships | 25 Years | 3.80% | 11.3% |
| (x) Hovercrafts | 15 Years | 6.33% | 18.1% |
| (xi) Fishing vessels with wooden hull | 10 Years | 9.50% | 25.9% |
| (xii) Dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes | 14 Years | 6.79% | 19.3% |
| 2. Vessels ordinarily operating on inland waters— | |||
| (i) Speed boats | 13 Years | 7.31% | 20.6% |
| (ii) Other vessels | 28 Years | 3.39% | 10.1% |
| VIII. Aircrafts or Helicopters [NESD] | 20 Years | 4.75% | 13.9% |
| IX. Railways sidings, locomotives, rolling stocks, tramways and railways used by concerns, excluding railway concerns [NESD] | 15 Years | 6.33% | 18.1% |
| X. Ropeway structures [NESD] | 15 Years | 6.33% | 18.1% |
| XI. Office equipment [NESD] | 5 Years | 19.00% | 45.1% |
| XII. Computers and data processing units [NESD] | |||
| (i) Servers and networks | 6 Years | 15.83% | 39.3% |
| (ii) End user devices, such as, desktops, laptops, etc. | 3 Years | 31.67% | 63.2% |
| XIII. Laboratory equipment [NESD] | |||
| (i) General laboratory equipment | 10 Years | 9.50% | 25.9% |
| (ii) Laboratory equipments used in educational institutions | 5 Years | 19.00% | 45.1% |
| XIV. Electrical Installations and Equipment [NESD] | 10 Years | 9.50% | 25.9% |
| XV. Hydraulic works, pipelines and sluices [NESD] | 15 Years | 6.33% | 18.1% |
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CA Raj Kumar
I love blogging and studying taxation. I write articles related to Tax laws and common issues in handling taxation in India. Often, common but small mistakes make things complicated. I write and share them to save precious time of others.
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