Plant and Machinery Depreciation Rate: Complete Guide

Introduction

Every business that runs on equipment, from a single CNC machine to an entire factory floor, loses a little of its asset value each year through use. The Income Tax Act allows you to turn that loss into a legitimate tax deduction through depreciation. For most businesses, the headline figure to remember is the 15% plant and machinery depreciation rate.

Claiming depreciation correctly does two things at once: it reduces your taxable income and keeps your books an honest reflection of what your assets are actually worth. Getting it wrong, applying the wrong rate, missing a timing rule, or claiming on the wrong asset are some of the more common reasons businesses face adjustments during assessment.

This guide walks through what plant and machinery depreciation means, the applicable rates, how to calculate it under the Written Down Value method, and the additional depreciation benefit available to manufacturers. At Anil D’Souza & Associates (ADCA), a Bangalore-based chartered accountants firm, we handle these computations for businesses across manufacturing, IT, real estate and logistics every assessment year, and the principles below are exactly where we start.

What is Plant and Machinery?

In tax terms, “plant and machinery” is a broad category covering the movable assets a business uses to carry on its operations. It includes any apparatus, equipment or mechanical contrivance used for business purposes, and it is not limited to heavy industrial gear.

Common examples include:

• Manufacturing equipment — lathes, presses, moulding machines and assembly-line tools

• Industrial machinery — boilers, compressors, transformers and switchgear

• Generators — diesel and backup power units used in operations

• Packaging machines — filling, sealing and labelling equipment

• Production tools — instruments, dies, jigs and other tools used on the shop floor

The category also extends to items many businesses overlook, such as air conditioners, electrical fittings, data-processing machines, and gas cylinders used in production. Correctly identifying what falls into this block matters because it determines the rate you can claim.

What is Depreciation on Plant and Machinery?

Depreciation is the gradual reduction in the value of a tangible asset over time. Machinery does not retain its value; it steadily loses value, and the tax system recognises this by letting you write off a portion of the cost each year.

There are three main reasons an asset depreciates:

• Wear and tear — physical deterioration from regular operation.

• Obsolescence — newer technology making existing machinery outdated

• Continuous usage — the steady erosion of useful life through daily use

For accounting purposes, depreciation ensures your financial statements reflect the true, current value of your assets rather than their original purchase price. For tax purposes, it is treated as an allowable business expense. The law accepts that if an asset earns you income year after year, you should be able to spread its cost across those years rather than deduct it all at once.

Plant and Machinery Depreciation Rate Under the Income Tax Act

Standard Depreciation Rate

For general plant and machinery that does not fall into any special category, the depreciation rate is 15%. This is the rate that applies to the bulk of ordinary business equipment and is the figure most businesses will use.

Special Depreciation Rates

Certain categories of plant and machinery carry higher rates, usually because they become obsolete faster or are encouraged through policy incentives:

Other sub-categories exist as well, for instance, commercial vehicles used in a hiring business attract 30%, so it is always worth confirming the correct block for specialised equipment.

A 2026 update worth noting: With effect from 1 April 2026, the new Income-tax Act, 2025, replaced the Income-tax Act, 1961. Depreciation provisions that previously sat under Section 32 have been re-enacted under Section 34 of the new Act. Importantly, the rates and the underlying method remain unchanged; the 15% and 40% figures continue to apply, and your closing Written Down Value as on 31 March 2026 carries forward as the opening value for the new tax year. The main change is the section reference businesses should now use in their fixed asset registers.

180-Day Rule

The timing of when you put an asset to use directly affects how much depreciation you can claim in the first year:

• Assets used for more than 180 days in the financial year can be depreciated at the full depreciation rate.

• For assets used for less than 180 days, you can claim only half (50%) of the eligible depreciation for that year.

The remaining depreciation is not lost; it continues to be claimed in subsequent years under the reducing-balance method. The practical takeaway: a machine put to use in, say, October versus April can make a meaningful difference to your first-year deduction, so the commissioning date should be documented carefully.

How to Calculate Depreciation on Plant and Machinery

Written Down Value (WDV) Method

Under the Income Tax Act, depreciation on plant and machinery is calculated using the Written Down Value (WDV) method, also known as the reducing balance method. Depreciation is charged on the asset’s diminishing value each year rather than on its original cost, so the rupee amount of depreciation reduces over time.

Formula:

Depreciation = Opening WDV × Depreciation Rate

Simple Example

Take a machine purchased for ?10,00,000 at a depreciation rate of 15%, used for more than 180 days in the year:

• First-year depreciation = ?10,00,000 × 15% = ?1,50,000

• Written Down Value carried forward = ?10,00,000 − ?1,50,000 = ?8,50,000

In the second year, the 15% rate is applied to ?8,50,000 (giving ?1,27,500), and so on. Each year’s depreciation is smaller than the last because it is calculated on a shrinking base.

Why the WDV Method is Used

The WDV method is the standard under the Income Tax Act for two practical reasons:

• Tax compliance — it is the method prescribed by law for most assets, applied across a “block of assets” rather than each item individually.

• Higher initial deductions — because more depreciation is claimed in the early years, businesses get larger deductions sooner, which improves cash flow when an asset is new.

Additional Depreciation on New Machinery

What is Additional Depreciation?

Beyond the normal 15%, the law offers an additional depreciation benefit on newly acquired machinery. This was governed by Section 32(1)(iia) under the old Act and now sits within Section 34 of the Income-tax Act, 2025. It allows an extra deduction in the year the new machinery is acquired and installed.

Eligibility

Additional depreciation is available to:

• Manufacturing businesses — those engaged in the manufacture or production of any article or thing (and certain power-generation undertakings)

• New machinery purchases — only brand-new plant and machinery qualify; second-hand machinery, office equipment, vehicles and machinery installed in office premises are generally excluded.

The benefit is an extra 20% of the eligible new machinery's actual cost (reduced to 10% in the year of purchase if the asset is used for less than 180 days, with the balance allowed the following year).

Benefits

• Extra tax deduction over and above the normal depreciation in the year of investment

• Reduced taxable profits, lowering the tax outflow in the year capital is deployed

An important caveat: Additional depreciation is not available to taxpayers who have opted into the concessional tax regimes (such as Sections 115BAA and 115BAB for companies, or the default personal regime), where depreciation is also capped at 40%. Because most taxpayers now fall under these regimes, eligibility for additional depreciation has narrowed considerably. This is precisely the kind of provision where a quick check with a tax advisor before filing can prevent an incorrect claim, something the ADCA team routinely reviews for manufacturing clients.

Benefits of Claiming Depreciation

Claiming depreciation correctly delivers several advantages:

• Reduces taxable income — depreciation is a deductible expense that directly lowers the profit on which tax is charged.

• Improves cash flow — it reduces tax liability without any actual cash leaving the business, since it is a non-cash expense.

• Reflects true asset value — your balance sheet shows what your machinery is realistically worth today rather than its original cost.

• Supports business expansion planning — accurate asset values and tax savings give you a clearer picture for reinvestment and capital decisions.

Common Mistakes to Avoid

Even straightforward depreciation claims go wrong in predictable ways. The most frequent errors we see are:

• Applying incorrect depreciation rates — for example, charging 15% on computers that qualify for 40%, or vice versa.

• Ignoring the 180-day rule — claiming full depreciation on machinery that was put to use late in the year.

• Claiming depreciation on ineligible assets — depreciation cannot be claimed on land or goodwill, and additional depreciation does not apply to second-hand or office machinery.

• Poor asset documentation — without proper records of cost, purchase date, and date put to use can result in claims being disallowed during assessment.

Each of these can trigger adjustments, interest or penalties at the assessment stage. Getting the classification and timing right the first time is far cheaper than defending a claim later.

Conclusion

For most businesses, the plant and machinery depreciation rate to remember is 15%, applied on a reducing balance under the Written Down Value method, with higher rates of 40% for computers, software and renewable energy equipment. Layered on top of this are the 180-day timing rule and, for eligible manufacturers, the additional depreciation benefit on new machinery.

Calculating depreciation accurately is not just a compliance formality. Done well, it reduces your tax liability, strengthens your cash position, and maintains the credibility of your financial statements. Done carelessly, it invites scrutiny and avoidable cost. The goal is always to maximise every legitimate deduction the law allows while staying fully compliant.

If you would like help classifying your assets correctly, applying the right rates, or structuring capital purchases to optimise depreciation benefits, Anil D’Souza & Associates (ADCA) works with businesses across Bangalore, Hyderabad and Mangalore on exactly these questions. Get in touch with our team for a consultation.

FAQs

What is the depreciation rate for plant and machinery?

The standard depreciation rate for most plant and machinery assets under the Income Tax Act is 15%. Certain categories, such as computers, software, and renewable energy equipment, are subject to a 40% rate.

How is depreciation calculated on machinery?

Depreciation is generally calculated using the Written Down Value (WDV) method, in which the prescribed rate is applied to the asset’s reducing balance each year rather than to its original cost.

What is the 180-day rule for depreciation?

If machinery is used for less than 180 days in a financial year, only 50% of the eligible depreciation can be claimed in that year. The balance is claimed in subsequent years.

Can businesses claim additional depreciation on machinery?

Yes, eligible manufacturing businesses can claim additional depreciation on new machinery under specified conditions — though this benefit is not available to taxpayers who have opted into the concessional tax regimes.

Is depreciation mandatory for plant and machinery?

Yes. Depreciation should be recorded to comply with accounting standards and accurately reflect the asset's value. Under the Income Tax Act, it is treated as a mandatory deduction once an asset is used for business.