In simple words, depreciation means the quantum of reduction in value of any fixed assets in business organizations. For example, you purchase a computer in financial year 2017-18 for Rs.50000/=. But if see the value of this computer in financial year 2018-19, you will find decrease in the value of computer. This difference in value of computer in financial 2017-18 and financial year 2018-19 is called depreciation. The decrease in value is due to use of the computer or the technique changed from time to time. Suppose the value of this computer is Rs. 20000/= then the difference of Rs.30000/= will be treated as depreciation. In fact this is the loss for the business organization and should be allowed as expenditure during financial year 2018-19 Otherwise the real position of the organization can not be revealed.

So, we have just given the simple example of depreciation. But as per Income Tax Act, the depreciation calculated in above example is not allowed as business expenditure. The Income Tax Act has allowed the certain percentage of depreciation on fixed assets keeping in view all the basic facts of use of fixed assets. The depreciation rates can be changed from time to time by Income Tax Department keeping in the view the importance of the certain factors effecting the value of fixed assets.

We are giving depreciation rates of some important fixed assets used by business organizations for financial year 2018-19 are under:-

NAME OF FIXED                                                                     DEPRECIATION RATES

                                                                                                          (F.Y. 2018-19)

Buildings used for residential purpose                                                        5%

(Except Hotels and Boarding Houses)

Buildings used for business purpose                                                         10%

Plant and Machinery                                                                                   15%

Air Conditioners                                                                                         15%

Motor Vehicles (Not used for hiring)                                                         15%

Motor Vehicles used for running on hires Commercial vehicles)            30%

Aeroplanes                                                                                              40%

Furniture and Pictures                                                                            10%

Computers including Software                                                               40%

Generators                                                                                              15%

Books used by professionals                                                                   40%

Books for running lending libraries                                                           40%

Note: There is no change in the above mentioned rates for Financial Year 2019-20)

To boost the automobile industry, The Central Board of Direct Taxes has notified the new rates of depreciation for motor vehicles (for official purpose) @ 30% and the motor vehicles (for commercial use) @ 45%. The rates of depreciation on these vehicles are allowed with a condition that these vehicles must be purchased on or after 23.08.2019 but before 01.04.2020 and are put to use before 01.04.2020