Depreciation Rate as per Companies Act 2013:Schedule II Useful Life, Rates and Calculation
The Companies Act, 2013 changed how Indian companies depreciate assets. Instead of prescribing fixed rates (as the 1956 Act’s Schedule XIV did), Schedule II prescribes the useful life of each asset class, and companies derive the depreciation rate from that life using either the Straight Line Method (SLM) or Written Down Value (WDV) method. Every company must apply these rates in its books, even though tax depreciation under the Income Tax Act follows entirely different rates. This guide gives you the Schedule II useful lives, the equivalent SLM and WDV rates, calculation examples, and the rules around residual value, shifts, and components.
Key Features
Useful-life based
Schedule II prescribes how many years an asset serves, and the rate falls out of that. A 3-year asset implies 31.67% SLM (on 95% of cost) or 63.16% WDV.
Method choice
Companies may use SLM (equal charge each year), WDV (higher charge early), or unit-of-production where usage drives wear.
Pro-rata application
Depreciation runs from the date the asset is ready for use, calculated day-wise in the year of purchase and sale.
Shift adjustment
For assets noted in Schedule II, double-shift use increases depreciation by 50% and triple-shift by 100% for that period.
Component accounting
Significant parts of an asset with different useful lives (say, an aircraft engine vs airframe) must be depreciated separately.
Deviation allowed with disclosure
A company may use a different useful life or residual value if technically justified and disclosed in the financial statements.
Depreciation rates as per Companies Act 2013 (key assets)
Step-by-step: computing book depreciation
Register with cost
Build a fixed asset register with cost, capitalisation date, and asset class.
Map each asset
Map each asset to its Schedule II useful life (or justify a different one).
Fix residual value
Fix residual value, normally 5% of cost.
Choose SLM or WDV
Choose SLM or WDV as accounting policy and apply consistently.
Calculate pro-rata
Calculate pro-rata for additions/disposals, apply shift loading where relevant.
Post the charge
Post the charge, reconcile with the depreciation note in financials, and compute deferred tax against IT depreciation.
Register with cost
Build a fixed asset register with cost, capitalisation date, and asset class.
Map each asset
Map each asset to its Schedule II useful life (or justify a different one).
Fix residual value
Fix residual value, normally 5% of cost.
Choose SLM or WDV
Choose SLM or WDV as accounting policy and apply consistently.
Calculate pro-rata
Calculate pro-rata for additions/disposals, apply shift loading where relevant.
Post the charge
Post the charge, reconcile with the depreciation note in financials, and compute deferred tax against IT depreciation.
Common challenges and solutions
Asset fully used beyond Schedule II life
Carrying amount should already be at residual; review lives prospectively as a change in estimate
Transition assets with expired life (legacy issue)
Schedule II allowed remaining value to be charged off or adjusted against retained earnings
Low-value assets
Many companies expense items below a threshold (commonly ₹5,000) as a policy with disclosure
Components with different lives
Apply component accounting for significant parts
Books vs tax mismatch confusion
Maintain two registers; recognise deferred tax instead of forcing one rate
Quick overview
Companies Act vs Income Tax Act depreciation
FAQs
How rates are derived
SLM rate = (Cost − Residual value) ÷ Useful life ÷ Cost × 100 WDV rate = [1 − (Residual value ÷ Cost)^(1/Useful life)] × 100
Example — computer costing ₹60,000, residual ₹3,000 (5%), life 3 years: - SLM: (60,000 − 3,000)/3 = ₹19,000 per year (31.67%). - WDV: 63.16% → Year 1: ₹37,896; Year 2: ₹13,961; Year 3: ₹5,143, leaving ₹3,000 residual.
Who must follow Schedule II
Must follow: All companies — private, public, OPC, Section 8 — for their statutory books. LLPs and firms aren’t bound by Schedule II but often adopt it as a reasonable basis.
Special regimes: Companies regulated by other laws (electricity companies) use lives notified by their regulator.
Cannot do: Charge no depreciation while declaring dividends — Section 123 bars dividend declaration without providing for depreciation.
Tips and best practices
Keep capitalisation dates accurate — pro-rata depreciation makes the date, not just the year, matter.
Revisit useful lives annually; a justified change is an estimate change applied prospectively, not a restatement.
For startups buying laptops, remember the 3-year book life vs 40% tax WDV gap and plan deferred tax from year one.
Document any deviation from Schedule II lives with a technical justification, because auditors will ask.
Latest position
Schedule II has remained stable in recent years, with the main practice developments coming from Ind AS adoption (component accounting, revenue-based amortisation limits for intangibles) and audit scrutiny of useful-life justifications. The Income Tax side, by contrast, has seen rate rationalisation over the years (computers at 40%), so the books-versus-tax gap remains a permanent feature of company accounting.
Read also: Different Depreciation Rates under Companies Act
Conclusion
Under the Companies Act 2013, depreciation starts with the asset’s useful life in Schedule II 3 years for computers, 10 for furniture, 15 for general plant and the SLM or WDV rate follows mathematically. Keep your asset register date-accurate, your residual values at 5% unless justified otherwise, and a parallel Income Tax computation for the return. StartupFlora’s accounting team sets up fixed asset registers, depreciation schedules and deferred tax workings for startups and growing companies get in touch if you’d rather have it done right the first time.
Disclaimer
StartupFlora provides consultancy services only. We are not affiliated with any government department. All scheme benefits and approvals are at the sole discretion of the respective government authority and implementing agency.