Depreciation Calculator
Calculate asset depreciation using straight line, declining balance, double declining, or sum-of-years method.
Enter details and click Calculate
Depreciation Calculator — SLM, WDV & All Methods Explained
Depreciation is the process of allocating the cost of a fixed asset over its useful life. Every business that owns machinery, vehicles, computers, furniture, or buildings must account for depreciation. It's a non-cash expense that reduces your taxable profit and reflects the true economic value of your assets over time.
In India, depreciation is crucial for both financial reporting and tax purposes. The Income Tax Act prescribes specific depreciation rates using the Written Down Value (WDV) method for each asset class. The Companies Act allows companies to choose Straight Line Method (SLM) or WDV based on the asset's useful life. Understanding which method applies to your situation can significantly impact your tax liability and reported profits.
What is Depreciation?
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the reduction in an asset's value due to wear, tear, age, or obsolescence. For businesses, depreciation is a non-cash expense that reduces taxable profit while preserving actual cash flows.
- Common depreciation methods: Straight Line Method (equal annual depreciation — SLM), Written Down Value method (declining balance — WDV), and Units of Production (based on actual asset usage).
- The Income Tax Act in India specifies WDV depreciation rates for different asset classes: buildings (5%–10%), plant and machinery (15%–40%), computers (40%), and vehicles (15%–30%).
- Depreciation provides a tax shield: for a ₹10 lakh machine with 15% WDV depreciation in the 30% tax bracket, year-1 depreciation of ₹1.5 lakh reduces tax by ₹45,000.
- For financial reporting, Companies Act 2013 prescribes useful life-based depreciation (typically SLM) which may differ from income tax depreciation — companies often maintain two separate calculations.
How to Use This Calculator
- Enter the asset cost (original purchase price)
- Enter the salvage/scrap value (expected value at end of useful life)
- Enter the useful life in years
- Select depreciation method (Straight Line, WDV/Declining Balance, Double Declining, or Sum of Years Digits)
- For WDV/Declining Balance, enter the depreciation rate (as per Income Tax schedule)
- View the complete year-wise depreciation schedule
Depreciation Formulas
- Annual Depreciation = (Cost − Salvage Value) / Useful Life
- Example = Asset ₹10,00,000, salvage ₹1,00,000, 5 years
- Annual Dep = (10,00,000 − 1,00,000) / 5 = ₹1,80,000/year
- 2. WRITTEN DOWN VALUE (WDV) — Income Tax method:
- Annual Depreciation = Book Value × Rate%
- Example = ₹10,00,000 at 15% WDV rate
- Year 1: 10,00,000 × 15% = ₹1,50,000 | Book value: ₹8,50,000
- Year 2: 8,50,000 × 15% = ₹1,27,500 | Book value: ₹7,22,500
- Year 3: 7,22,500 × 15% = ₹1,08,375 | Book value: ₹6,14,125
- 3. DOUBLE DECLINING BALANCE:
- Rate = 2 / Useful Life
- Annual Dep = Book Value × Rate (switches to SLM in later years)
Income Tax Depreciation Rates (WDV Method)
- Buildings (residential): 5% per year
- Plant & Machinery (general): 15% per year
- Computers & software: 40% per year
- Motor vehicles (not used for hire): 15% per year
- Motor vehicles (used for hire): 30% per year
- Furniture & fittings: 10% per year
- Intangible assets: 25% per year
Key Terms
- Straight Line Method (SLM)
- Equal depreciation charged every year. Simpler and gives stable profit numbers.
- WDV / Written Down Value
- Fixed percentage of the declining book value — higher depreciation in early years, lower later. Used by Indian Income Tax Act.
- Salvage Value
- The estimated residual value of the asset at the end of its useful life (also called scrap value).
- Book Value
- Cost minus accumulated depreciation — the asset's value as shown on the balance sheet.
- Useful Life
- The estimated period over which the asset will be economically productive.
Frequently Asked Questions
Depreciation matches the cost of an asset with the revenue it helps generate over time (matching principle). It reduces reported profit (and tax liability) each year instead of taking a huge hit in the year of purchase. It's a non-cash expense — no actual cash leaves the business, but it reduces taxable income, creating a tax shield.
SLM (Straight Line Method): Same depreciation amount every year. Total depreciation = Cost minus Salvage Value. Simple and predictable. WDV (Written Down Value): A fixed percentage of the remaining book value each year. Higher depreciation in early years, lower in later years. Indian Income Tax Act mandates WDV for most assets. Companies Act allows both SLM and WDV.
The Income Tax Act (Schedule II, Section 32) prescribes WDV rates: Buildings 5-40% (type dependent), Plant & Machinery 15%, Computers 40%, Motor vehicles 15-30%, Furniture 10%, Intangibles 25%. These are the maximum rates you can claim as a deduction. The actual rate varies by asset category — always check the current IT schedule for your specific asset class.
No — depreciation is a non-cash expense. No money actually leaves the business when depreciation is recorded. It's an accounting entry that reduces asset value and profit on paper. This is why depreciation is added back when calculating operating cash flow in a cash flow statement. The actual cash was spent when the asset was purchased.
For Income Tax purposes in India, WDV is mandated for most assets. For financial reporting (Companies Act), you can choose. WDV is better for assets that lose value quickly early (cars, computers) — higher early depreciation reduces tax in profitable early years. SLM is simpler and gives stable year-on-year profits — preferred for long-life assets like buildings. Consult your CA for the best approach for your specific business.