Income Tax 2025

Appearance

Deduction for depreciation. ​

33(1) ​

A deduction in respect of depreciation of—

  • (a) buildings, machinery, plant or furniture, being tangible assets;
  • (b) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired, not being goodwill of a business or profession, owned wholly or partly by the assessee and used wholly and exclusively for the purposes of the business or profession, shall be allowed, as per the provisions of this section.

33(2) ​

In case of assets referred to in sub-section (1) of an undertaking engaged in generation or generation and distribution of power, the depreciation shall be a percentage of its actual cost to the assessee, as prescribed.

33(3) ​

  • (a) In case of any block of assets, depreciation shall be a percentage of its written down value, as prescribed;
  • (b) when any asset forming part of the block of assets is partly, or not wholly and exclusively, used for the purposes of the business or profession, the deduction allowable shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer, having regard to the usage for the purposes of the business or profession;
  • (c) when deduction of actual cost in respect of any machinery or plant has been allowed under section 54, no deduction under this sub-section shall be allowed.

33(4) ​

The deduction under this section shall be restricted to 50% of the prescribed rate, if such asset, being asset referred to in sub-sections (1), (2) and (8) is––

  • (a) acquired by the assessee during the tax year; and
  • (b) put to use for the purposes of business or profession for less than one hundred and eighty days in that tax year.

33(5) ​

The allowable deduction calculated at the prescribed rates under this section shall be allowed on pro rata basis based on number of days for which assets were used by the following:––

  • (a) predecessor and successor, in case of a succession under section 70(1)(zd) or (ze) or (zf), or section 313; or
  • (b) amalgamating company and the amalgamated company in case of an amalgamation; or
  • (c) demerged company and the resulting company in case of a demerger.

33(6) ​

Where a building, not owned by the assessee, is held on lease or by any other right of occupancy is used for the purposes of business or profession, and if any capital expenditure is incurred by the assessee for the purposes of business or profession on construction of any structure or any work by way of renovation, extension or improvement to such building, then such structure or work shall be treated as a building owned by the assessee for the purposes of this section.

33(7) ​

The provisions of this section shall apply even when the assessee has not claimed deduction for depreciation in computing the total income.

33(8) ​

Further sum in addition to deduction under sub-section (3) shall be allowed, when–—

  • (a) the assessee is engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power;
  • (b) the assessee acquires and installs any new machinery or plant;
  • (c) the new machinery or plant is first put to use by the assessee for the purposes of business; and
  • (d) the new machinery or plant—
    • (i) is not a ship or an aircraft;
    • (ii) was not used either within or outside India by any other
    • (iii) is not installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
    • (iv) is not in the nature of any office appliances or road transport vehicle; and
    • (v) is not of a class of asset on which the whole of the actual cost is allowable as a deduction (whether by way of depreciation or otherwise) in computing the income under the head “Profits and gains of business or profession” of any tax year.

33(9) ​

The additional deduction referred to in sub-section (8) shall be––

  • (a) 20% of the actual cost of the new machinery or plant in the tax year when it is acquired and put to use; or
  • (b) 10% of the actual cost, if the new machinery or plant is acquired and put to use for less than one hundred and eighty days in the relevant tax year, and the remaining 10% shall be allowed in the immediately succeeding tax year.

33(10) ​

The difference between the written down value and the money payable including the scrap value, if any, shall be allowed as deduction when any tangible asset in respect of which depreciation is claimed and allowed under sub-section (2)––

  • (a) is sold, discarded, demolished or destroyed in the tax year not being the tax year in which it is first put into use;
  • (b) the money payable including the scrap value, if any, is less than its written down value; and
  • (c) such deficiency is actually written off in the books of account of the assessee.

33(11) ​

  • (a) Where the profits and gains chargeable for the tax year before allowing the deduction under sub-section (1) is less than the allowable deduction under that sub-section, then––

    • (i) if such profits and gains is not a loss, the deduction under sub-section (1) shall be allowed to the extent of the available profits and gains;
    • (ii) if such profits and gains is a loss, no deduction under sub-section (1) shall be allowed;

  • (b) the amount of deduction which has not been allowed under clause (a) shall be added to the allowable deduction under this section, whether available or not, for the succeeding tax year and the total amount shall be deemed to be eligible for deduction in that year, and so on for the succeeding tax years;

  • (c) the provisions of this sub-section shall be subject to the provisions of sections 112(3) and 113(4); and

  • (d) any deduction in respect of any depreciation carried forward to the succeeding tax year under this sub-section shall be deemed to be depreciation, actually allowed.

33(12) ​

In this section,––

  • (a) “assets” mean—

    • (i) tangible assets, being buildings, machinery, plant or furniture;
    • (ii) intangible assets being––
      • (A) know-how;
      • (B) patents;
      • (C) copyrights;
      • (D) trademarks;
      • (E) licences;
      • (F) franchises; or
      • (G) any other similar business or commercial rights, but not being goodwill of a business or profession;

  • (b) “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto);

  • (c) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in section 5(c) of the Banking Regulation Act, 1949 with a banking institution as referred to in section 45(15) of the said Act, sanctioned and brought into force by the Central Government under section 45(7) of that Act, of any asset by the banking company to the banking institution;

  • (d) “written down value of the block of assets” shall have the same meaning as in section 41(1)(Table: Sl. No. 3)

Explanation

Section Summary: ​

Section 33 of the new income tax law governs the deduction for depreciation on tangible and intangible assets used for business or profession. It outlines the rules for calculating depreciation, including special provisions for power generation businesses, restrictions on partial usage, and additional deductions for new machinery or plant. The section also addresses scenarios like succession, amalgamation, and demerger, ensuring continuity in depreciation claims.

Key Changes: ​

  1. Depreciation on Intangible Assets: The section explicitly includes intangible assets like know-how, patents, trademarks, and franchises (excluding goodwill) for depreciation claims.
  2. Additional Deduction for New Machinery/Plant: A new provision allows an additional deduction of 20% (or 10% if used for less than 180 days) for new machinery or plant used in manufacturing, production, or power generation.
  3. Proportional Depreciation: Depreciation is now calculated proportionally based on the number of days an asset is used in a tax year, especially in cases of succession, amalgamation, or demerger.
  4. Restriction on Partial Usage: If an asset is not used wholly for business, depreciation is restricted to the proportionate fair value determined by the Assessing Officer.
  5. Carryforward of Unused Depreciation: If profits are insufficient to claim full depreciation, the unclaimed amount can be carried forward to subsequent years.

Practical Implications: ​

  1. Businesses: Companies in manufacturing, production, or power generation can benefit from additional deductions for new machinery or plant, reducing taxable income.
  2. Taxpayers with Intangible Assets: Owners of patents, trademarks, or franchises can now claim depreciation, lowering their tax liability.
  3. Compliance: Taxpayers must maintain detailed records of asset usage, acquisition dates, and costs to calculate depreciation accurately.
  4. Partial Usage: Businesses using assets partially for non-business purposes must ensure proper documentation to justify proportionate depreciation claims.
  5. Carryforward: Businesses with low profits can carry forward unclaimed depreciation to future years, providing flexibility in tax planning.

Critical Concepts: ​

  1. Block of Assets: A group of assets falling under the same class (e.g., machinery, buildings) for which depreciation is calculated collectively.
  2. Written Down Value (WDV): The value of an asset after deducting accumulated depreciation. Depreciation is calculated as a percentage of WDV.
  3. Pro Rata Depreciation: Depreciation is calculated based on the number of days an asset is used in a tax year.
  4. Additional Deduction: A bonus deduction of 20% (or 10%) for new machinery or plant, subject to specific conditions.
  5. Carryforward of Depreciation: Unclaimed depreciation due to insufficient profits can be carried forward to future years.

Compliance Steps: ​

  1. Maintain Asset Records: Keep detailed records of asset acquisition dates, costs, and usage.
  2. Calculate Depreciation: Use prescribed rates to calculate depreciation for each asset or block of assets.
  3. Document Partial Usage: If an asset is not used wholly for business, document the proportionate usage to justify restricted depreciation claims.
  4. Claim Additional Deduction: For new machinery or plant, ensure compliance with conditions (e.g., not used before, not installed in residential premises) to claim the additional 20% deduction.
  5. Carryforward Unused Depreciation: If profits are insufficient, carry forward unclaimed depreciation to future years and include it in subsequent tax filings.

Examples: ​

  1. Example 1 – Additional Deduction: A manufacturing company buys new machinery for ₹10 lakh and uses it for 200 days in the tax year. It can claim:

    • Regular depreciation (e.g., 15% of ₹10 lakh = ₹1.5 lakh).
    • Additional deduction of 20% of ₹10 lakh = ₹2 lakh.
    • Total deduction = ₹3.5 lakh.

  2. Example 2 – Partial Usage: A business uses a machine for 60% business purposes and 40% personal use. The Assessing Officer allows depreciation only on 60% of the machine’s WDV.

  3. Example 3 – Carryforward: A company has profits of ₹5 lakh before depreciation and claims ₹8 lakh in depreciation. Since profits are insufficient, ₹3 lakh of unclaimed depreciation is carried forward to the next year.

  4. Example 4 – Pro Rata Depreciation: A company acquires machinery on October 1 and uses it for 90 days in the tax year. Depreciation is calculated proportionally for 90 days instead of the full year.

This section simplifies depreciation claims while introducing new benefits and compliance requirements, making it essential for businesses and professionals to understand and apply these provisions accurately.