Depreciation under the Companies Act and the Income-tax Act: the two charges, and the year the difference reverses

Which charge is higher, and when the difference reverses

Tax takes the larger charge in year one on every asset in the first table below, each put to use part way through the year on 1 July 2026. A motor car costing ₹ 10,00,000, put to use that day, charges ₹ 89,144 in the books, under Schedule II to the Companies Act, 2013 over 8 years, and ₹ 1,50,000 for tax, under s.33 of the Income-tax Act, 2025 at the 15% block rate. Tax runs ₹ 60,856 ahead.

The year that matters is not the year the annual difference turns, 2028-29 on the car, but the year the cumulative difference crosses nil, 2030-31, because that balance is what a deferred tax working carries. While that balance has tax ahead, the direction is a liability in deferred tax terms; once it has the books ahead, it is an asset.

The rule in plain words

The books follow Schedule II, which prescribes useful lives and never rates, and mandates neither the straight line nor the written down value method: the choice is the company's accounting policy. The Part C life is indicative, not a ceiling: Part A para 3(i), as amended by G.S.R. 627(E) dated 29 August 2014, says the life shall not ordinarily be different from Part C, and a longer or shorter one may be taken on disclosure with technical advice. The charge runs pro rata by date from the date of addition under Note 2: 274 of 365 days for an asset added on 1 July 2026.

Tax follows s.33, with rule 25 and Appendix I of the Income-tax Rules, 2026, which prescribe rates on a block, never a life and never an asset. Part year use is not a pro rata at all. An asset acquired in the tax year and put to use for less than 180 days takes half the prescribed rate under s.33(4), on that asset alone, and the forgone half is not carried forward. Depreciation is mandatory under s.33(7), whether or not it is claimed.

Year one on five common assets, and the year the difference turns

Each asset costs ₹ 10,00,000, is acquired and put to use on 1 July 2026 (274 days), is depreciated straight line over its Part C life to a 5% residual, is the only asset in its block, and takes no additional depreciation.

The annual turn is the first year the tax charge falls below the book charge; the reversal is the later year the cumulative difference crosses nil. The building takes 10% as one not used mainly for residential purposes.

The 180 day test against the date based pro rata

Each row is general plant and machinery costing ₹ 10,00,000, on a 15 year life and a 15% block rate, straight line to a 5% residual, acquired and put to use on the date shown in tax year 2026-27.

One day, 3 October 2026 against 4 October 2026, moves the book charge by ₹ 174 and the tax charge by ₹ 75,000. The test is less than 180 days, so 180 days takes the full rate.

One motor car, year by year

This is the ₹ 10,00,000 motor car from the first table, put to use on 1 July 2026: straight line over 8 years to a 5% residual of ₹ 50,000 in the books, 15% on written down value for tax, held throughout and run as its own block.

The annual difference turns in 2028-29 with both columns charging. The cumulative difference crosses nil in 2030-31, at +₹ 7,849, and the books are ahead for the rest of the table, by ₹ 1,92,884 at most in 2033-34. The book column reaches its residual in 2034-35; from there the tax written down value runs on alone, ₹ 1,67,343 after 2036-37, because a block on written down value never reaches nil.

What a CA gets asked, and what the answer turns on

• Written down value in the books. The rate is ICAI's, R = [1 - (s/c) raised to the power 1/n] x 100 from Guidance Note GN(A) 35 para 38, and it is not in Schedule II. On the car it is 31.23%, charging ₹ 2,34,472 in year one against ₹ 1,50,000 for tax, books ahead by ₹ 84,472. A nil residual solves the formula to a hundred percent, a limitation of the method and not an answer.
• The residual value cap. Part A para 3(i) says residual value shall not be more than 5% of original cost, ₹ 50,000 on ₹ 10,00,000, leaving ₹ 9,50,000 to charge. It is a ceiling, rebuttable on disclosure with technical advice, not a mandatory 5%; Note 5, which most writing cites for it, was omitted by G.S.R. 237(E) with effect from 1 April 2014.
• Tax is not always ahead. Appendix I does not name office equipment, so it takes the 15% residual plant and machinery rate against a 5 year Part C life: put to use on 1 April 2026, it charges ₹ 1,90,000 in the books against ₹ 1,50,000 for tax, books ahead.
• Lives and rates do not line up. Schedule II splits buildings by construction and Appendix I by use, so an RCC frame building used mainly for residential purposes keeps its 60 year life but takes 5%, not 10%.
• Two dates. The book pro rata runs from the date of addition and the 180 day test from the date put to use; an asset not put to use in the year earns nothing under s.33 while the books can still charge. Where your policy under AS 10 or Ind AS 16 starts depreciation when the asset is available for use, take that date on the book side.
• An asset inside a block. Tax keeps a written down value for a block under s.33, never for an asset, so the tables run each asset as its own block, exact only where it is; for an asset already in a block the tax figure is your own apportionment, not a statutory amount.
• Goodwill. It is out of the intangible block under s.33(1)(b), so the tax charge is nil however the books amortise it. That difference is permanent and never reverses.

What changes for tax year 2026-27 under the 2025 Act

The Income-tax Act, 2025 is in force from 1 April 2026 and governs tax year 2026-27, replacing the previous year and the assessment year with a single tax year. Depreciation is s.33, the block working [(A - D) + B - C] is s.41(1)(c), the rule is 25 and the rate table is Appendix I of the Income-tax Rules, 2026. Commentary widely cites rule 5 and an Appendix IA; there is no Appendix IA.

The rates were read from a Gazette formatted copy of the Rules carrying G.S.R. 198(E) and the date of 20 March 2026, not from the official text, so confirm a rate against the official text before you rely on it. FY 2025-26 is assessed under the Income-tax Act, 1961 and the Income-tax Rules, 1962, whose Appendix I has not been read for the calculator, so set that year's block rate yourself. The book side does not move: Schedule II is the same text for both years, applied as amended from ICAI Guidance Note GN(A) 35 and not from the MCA searchable text, which is stale on five points.

What the calculator does

The calculator takes one asset and strikes both charges, the Schedule II charge from the life, residual, method and date of addition and the s.33 charge on its block, then runs both forward and names the year the cumulative difference crosses nil, or says it does not cross inside the years shown. The life and the block rate come pre-filled from the class as editable fields; classifying the asset, choosing the life, the residual and the method, and confirming the rate against the official text stay with the CA. It does not compute deferred tax under AS 22 or Ind AS 12.