Depreciation on residential and commercial Property

Before going into the topic, first let us understand the meaning of basic terms which are relevant to this topic.

What is Depreciation?

Depreciation refers to the measure of gradual reduction in the Value of asset due to wear and tear, effluxion of time and Obsolescence through technology and Market changes.

What do you mean by Residential Building for the purpose of Depreciation as per Income tax Act?

Residential building refers to a building if 66.67% or more than 66.67% of total built-up area used for Residential purposes.

What do you mean by Commercial/Factory Building for the purpose of Depreciation as per Income tax Act?

All the Buildings other than Residential buildings as per Income tax Act are Commercial/Factory buildings.

How Depreciation helps in Tax savings?

Depreciation expense can be claimed for the Assets held such as Buildings, Plant & Machinery etc as per applicable Income tax rates which will reduce the Taxable income, ultimately results in reduction of Income tax.

Can Depreciation be claimed if the asset is purchased in cash?

Yes, if the asset value is within Rs. 10,000/- (or) if cash payments done for purchase of asset per day does not exceed Rs. 10,000. So, if cash payments exceed Rs. 10,000 per day, then it won’t be considered as Cost of Acquisition of asset, accordingly Depreciation not allowed as per Section 40(A)(3).

Depreciation table for ‘Buildings’ as per Income tax Act:

Block of Assets	Depreciation allowance as percentage of written down value
Buildings which are used mainly for residential purposes except hotels and boarding houses	5%
Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below.	10%
Buildings acquired on or after the 1st day of September 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities under clause (i) of sub-section (4) of section 80-IA	40%
(4)Purely temporary erections such as wooden structures	40%

Now, we will see the different situations under which we can claim Depreciation or not as per Income tax Act:

Disclaimer:

“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”

Prepared On:
8/05/23

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Depreciation on residential and commercial Property

What is Depreciation?

What do you mean by Residential Building for the purpose of Depreciation as per Income tax Act?

What do you mean by Commercial/Factory Building for the purpose of Depreciation as per Income tax Act?

How Depreciation helps in Tax savings?

Can Depreciation be claimed if the asset is purchased in cash?

Depreciation table for ‘Buildings’ as per Income tax Act:

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