MulticalcDepreciation Calculator
Enter asset details to calculate yearly depreciation schedule and total deduction.
Depreciation Schedule
Enter asset details to see depreciation schedule.
Depreciation Calculation Formula
Straight Line Method
Formula:
Annual Depreciation = (Cost - Salvage Value) / Useful Life
Where:
Cost = Purchase price of asset
Salvage = Scrap/residual value
Life = Years of usefulness
Key Concepts
Important Terms:
Book Value = Cost - Accumulated Depreciation
Depreciation Rate = 1 / Useful Life
Total Depreciation = Cost - Salvage Value
Example Calculation:
Scenario: Purchase computer equipment for ₹1,00,000 with 5-year useful life and ₹10,000 salvage value
Depreciable Amount = ₹1,00,000 - ₹10,000 = ₹90,000
Annual Depreciation = ₹90,000 / 5 years = ₹18,000 per year
After 5 years: Equipment value reduces to ₹10,000 (salvage value)
Depreciation Methods Comparison
Different depreciation methods suit different asset types:
| Method | Description | Depreciation Pattern | Best For |
|---|---|---|---|
| Straight Line | Equal depreciation every year | Constant amount | Buildings, equipment, furniture |
| Declining Balance | Higher depreciation early years | Decreasing amount | Vehicles, electronics, software |
| Units of Production | Based on usage or units produced | Variable per activity | Manufacturing machines, vehicles |
| Sum of Years Digits | Accelerated depreciation | Higher early, lower later | Assets with quick obsolescence |
Useful Life by Asset Type (India)
Standard depreciation periods per Indian tax guidelines:
| Asset Type | Useful Life Range | Typical Depreciation Rate | Examples |
|---|---|---|---|
| Buildings/Structures | 30 - 60 years | 1.67% - 3.33% | Office buildings, warehouses |
| Machinery & Equipment | 8 - 15 years | 6.67% - 12.5% | Industrial machines, plant equipment |
| Vehicles | 5 - 8 years | 12.5% - 20% | Cars, trucks, commercial vehicles |
| Computers & IT | 3 - 5 years | 20% - 33.33% | Laptops, servers, networking equipment |
| Furniture & Fixtures | 10 - 15 years | 6.67% - 10% | Office furniture, fixtures, installations |
Understanding Asset Depreciation
Why Calculate Depreciation?
- Tax Deduction: Non-cash expense reducing taxable income annually
- Financial Reporting: Accurate book value in balance sheets
- Asset Management: Track replacement schedules
- Cost Allocation: Spread asset cost over useful life
- Profitability: True earnings after accounting for asset usage
Key Depreciation Concepts
- Depreciable Amount: Cost minus salvage value
- Accumulated Depreciation: Total depreciation claimed to date
- Book Value: Cost minus accumulated depreciation
- Residual Value: Expected scrap/salvage value
- Depreciation Rate: Percentage per year (1/useful life)
Real-World Depreciation Examples
Example 1: Computer Equipment
Scenario: Office computer system costing ₹75,000 with 5-year useful life and ₹5,000 salvage value
Calculation:
- Depreciable Amount: ₹75,000 - ₹5,000 = ₹70,000
- Annual Depreciation: ₹70,000 / 5 = ₹14,000/year
- Depreciation Rate: 20% per year
- Tax Deduction: ₹14,000 annually (reduces taxable income)
Book value: ₹61,000 (Year 1), ₹47,000 (Year 2), ₹33,000 (Year 3), etc.
Example 2: Office Furniture
Scenario: Office furniture worth ₹2,00,000 with 10-year useful life and ₹20,000 salvage value
Calculation:
- Depreciable Amount: ₹2,00,000 - ₹20,000 = ₹1,80,000
- Annual Depreciation: ₹1,80,000 / 10 = ₹18,000/year
- Depreciation Rate: 10% per year
- After 10 years: Value reduces to ₹20,000 (salvage)
Annual tax benefit of ₹18,000 (at 30% tax rate = ₹5,400 saved)
Example 3: Commercial Vehicle
Scenario: Commercial truck for ₹8,00,000 with 5-year useful life and ₹1,00,000 salvage value
Calculation:
- Depreciable Amount: ₹8,00,000 - ₹1,00,000 = ₹7,00,000
- Annual Depreciation: ₹7,00,000 / 5 = ₹1,40,000/year
- Total Tax Deduction: ₹7,00,000 over 5 years
- Monthly Depreciation: ₹11,667 (for accounting)
Important for business vehicles: Track actual book value for asset accounting
Example 4: Building Structure
Scenario: Warehouse building worth ₹50,00,000 with 30-year useful life and ₹10,00,000 salvage value
Calculation:
- Depreciable Amount: ₹50,00,000 - ₹10,00,000 = ₹40,00,000
- Annual Depreciation: ₹40,00,000 / 30 = ₹1,33,333/year
- Depreciation Rate: 3.33% per year
- Long-term asset: Steady deduction over 30 years
Buildings provide stable, long-term tax deductions for real estate investors
When to Use Depreciation Calculator
Use This Calculator For:
- ✓ Planning asset purchases for business
- ✓ Calculating tax deductions
- ✓ Creating depreciation schedules
- ✓ Financial reporting and audits
- ✓ Assessing equipment replacement needs
Key Decision Points:
- ✓ Maximize tax benefits annually
- ✓ Plan capital expenditure budgets
- ✓ Track asset book values
- ✓ Schedule maintenance/replacement
- ✓ Comply with accounting standards (AS/Ind-AS)
Frequently Asked Questions
Depreciation is the annual reduction in asset value (the expense amount). Book value is the
remaining value of the asset after cumulative depreciation. For example, if you buy equipment for
₹1,00,000 and depreciate ₹20,000 yearly, the depreciation is ₹20,000, but the book value after year
1 is ₹80,000. Depreciation is shown in the income statement, while book value appears on the balance
sheet as part of fixed assets.
Generally, depreciation can only be claimed for assets actively used in business or for income
generation. If an asset is idle or not in use, depreciation may not be allowed by tax authorities.
However, the asset still technically depreciates in physical value. Some tax jurisdictions allow
restricted depreciation on idle assets. Consult your CA/tax advisor regarding your specific asset
situation and applicable tax laws.
Straight-line depreciation deducts the same amount every year (equal annual expense). Declining
balance depreciation applies a fixed rate to the remaining book value, so early-year deductions are
higher and decrease over time. Straight-line is simpler and commonly used for buildings and
equipment. Declining balance provides larger early deductions, beneficial for assets that lose value
quickly (vehicles, electronics). The choice depends on the asset type and tax regulations in your
jurisdiction.
No, salvage value (scrap/residual value) should never exceed the original cost. If you expect an
asset to appreciate (gain value) rather than depreciate, it's not a depreciable asset. Examples:
real estate (appreciating), antiques, gold, art. These appreciating assets use different valuation
methods. However, most business assets (machinery, vehicles, equipment) depreciate. If you expect an
asset to appreciate, don't calculate depreciation; instead, reassess its market value periodically.
Under Indian Income Tax Act, depreciation is allowed as a deduction under Section 32. The
depreciation rate is prescribed by the Income Tax Department for different asset categories. For
instance, buildings (15 years - 4th block) get 3.33%, vehicles (5 years - 2nd block) get 20%,
computers (3 years - 1st block) get 33.33%. You can claim depreciation only if the asset has a
useful life exceeding one year and is used for business/income generation. Always file ITR with
depreciation schedules and maintain proper documentation.
If you sell an asset before the end of its useful life, you recognize a gain or loss on disposal.
The gain/loss is the difference between the selling price and the current book value (cost minus
accumulated depreciation). For example, if equipment purchased for ₹1,00,000 is depreciated for 3
years at ₹20,000/year (book value ₹40,000) and sold for ₹50,000, you have a gain of ₹10,000. This
gain/loss is taxable/deductible in the year of sale. Continue depreciation until the asset is sold.
No, land cannot be depreciated as it has indefinite useful life and typically appreciates. However,
the building structure built on land can be depreciated. When you purchase a property with land and
building, you must separate the costs. The building portion is depreciable, but the land value is
not. This separation is important for accurate depreciation calculation and tax compliance. Consult
an accountant to properly allocate costs between land and building components.
No, depreciation and amortization are different. Depreciation applies to physical/tangible assets
like equipment, vehicles, and buildings. Amortization applies to intangible assets like patents,
copyrights, software, and goodwill. Both represent the expense of using an asset over its useful
life, but depreciation is for tangible assets while amortization is for intangible assets. The
calculation method can be similar, but the asset types and useful lives differ. In accounting, both
reduce the asset value and provide tax deductions.
Quick Tips
- Separate land and building costs
- Maintain detailed asset register
- Salvage must be less than cost
- Different assets have different lifespans
- Provides annual tax deductions
- Review useful life periodically
Disclaimer
This calculator uses the straight-line method for educational purposes. Actual depreciation may vary based on accounting standards (AS/Ind-AS) and tax regulations. Consult a chartered accountant for accurate calculations.Learn More
Straight-Line Method: Equal depreciation each year - most common for buildings and equipment.
Book Value: Asset cost minus accumulated depreciation to date.
Tax Benefit: Annual depreciation reduces taxable income (non-cash expense).