Applies to India
Straight-line vs written down value depreciation: how to calculate both
By the OrbitPi product team · Updated · 4 min read
Straight-line depreciation (SLM) charges the same amount every year: cost less residual value, divided by useful life. Written down value depreciation (WDV) charges a fixed percentage of the remaining book value, so the charge is highest in the first year and falls each year. Under Schedule II of the Companies Act, 2013, companies depreciate assets over their useful lives using either method, while income tax depreciation is calculated separately on blocks of assets at prescribed WDV rates.
Key takeaways
- SLM charge = (cost − residual value) ÷ useful life, the same every year.
- WDV rate = 1 − (residual value ÷ cost)^(1 ÷ useful life), applied to the opening book value each year.
- Schedule II gives indicative useful lives, such as 3 years for laptops and desktops, and residual value is normally not more than 5% of cost.
- Income tax depreciation uses block-wise WDV rates and a half-rate rule for assets used for less than 180 days in the year.
- Book and tax depreciation usually differ, which creates a deferred tax difference.
What is depreciation?
Depreciation spreads the cost of an asset, less its expected residual value, over the years the business uses it. It reflects that machines, vehicles and computers wear out or become obsolete, and matches their cost with the revenue they help earn.
For companies in India, Schedule II of the Companies Act, 2013 sets indicative useful lives for classes of assets and says the residual value is normally not more than 5% of original cost. A company can use a different useful life or residual value if it has a technical justification and discloses it.
Straight-line method (SLM)
Under SLM the depreciable amount is charged evenly over the useful life. The formula is: annual depreciation = (cost − residual value) ÷ useful life in years. SLM suits assets that give roughly equal benefit each year, such as buildings, furniture and many machines.
Written down value method (WDV)
Under WDV, also called the declining-balance method, a fixed rate is applied each year to the asset’s opening written-down value. The charge is largest in the first year and falls over time, which suits assets that lose value or usefulness quickly, such as computers and vehicles.
To find the WDV rate that brings an asset down to its residual value by the end of its useful life, use: rate = 1 − (residual value ÷ cost)^(1 ÷ useful life).
Worked example: a ₹1,00,000 laptop over 3 years
A company buys a laptop for ₹1,00,000. Schedule II gives end-user devices such as laptops a useful life of 3 years, and the company uses a residual value of 5%, or ₹5,000.
SLM charge: (₹1,00,000 − ₹5,000) ÷ 3 = ₹31,666.67 a year. WDV rate: 1 − (5,000 ÷ 1,00,000)^(1/3) = 63.16%.
| Year | SLM charge (₹) | SLM closing value (₹) | WDV charge at 63.16% (₹) | WDV closing value (₹) |
|---|---|---|---|---|
| 1 | 31,666.67 | 68,333.33 | 63,159.69 | 36,840.31 |
| 2 | 31,666.67 | 36,666.66 | 23,268.23 | 13,572.08 |
| 3 | 31,666.66 | 5,000.00 | 8,572.08 | 5,000.00 |
Both methods charge the same ₹95,000 in total. WDV charges two-thirds of it in the first year, so profits are lower early and higher later compared with SLM.
Companies Act useful lives and income tax rates
Income tax depreciation is calculated separately under section 32 of the Income-tax Act on blocks of assets using WDV rates. If an asset is put to use for less than 180 days in the year it is bought, only half the rate is allowed that year.
| Asset | Useful life, Schedule II | Income tax WDV rate |
|---|---|---|
| Laptops and desktops (end-user devices) | 3 years | 40% |
| Servers and networks | 6 years | 40% |
| Furniture and fittings (general) | 10 years | 10% |
| Office equipment | 5 years | 15% |
| Plant and machinery (general) | 15 years | 15% |
| Motor cars (not used in a hire business) | 8 years | 15% |
Rates and lives above are the general entries; special categories and later amendments can apply. Always confirm against the current Schedule II and the depreciation rate table under the Income-tax Rules before using them.
Which method should a company use?
- Choose the method that best reflects how the asset’s benefits are used up, and apply it consistently to the class of assets.
- Depreciate significant parts of an asset with different useful lives separately (component accounting), as Schedule II requires.
- Review useful lives and residual values periodically, and disclose the method and any changes in the accounts.
- Keep an asset-level register, so gross block, accumulated depreciation and net block reconcile to the books at any date.
General information, not professional advice. This guide summarises the rules as we understand them on the date shown. Laws, notifications and thresholds change, and their application depends on your facts. Check the official sources below and consult a chartered accountant or tax adviser before acting on it.
How OrbitPi Assets helps
OrbitPi Assets runs depreciation monthly using straight-line, declining-balance or double-declining methods, and shows gross block, accumulated depreciation and net block at any date. It supports bulk import of existing assets with opening written-down values.
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