Every company registered under the Companies Act 2013 computes depreciation twice. Once for the statutory financial statements, under Schedule II. Once for the income-tax return, under section 32 of the Income Tax Act. They use different methods, different rates, different asset groupings and different conventions for additions. Neither can be derived from the other, and the difference between them drives your deferred tax.

The Companies Act book (Schedule II)

  • Basis: useful life of the asset, prescribed per class in Part C of Schedule II (for example, general plant and machinery 15 years, computers and data-processing units 3 years for end-user devices and 6 years for servers, office furniture 10 years, motor cars 8 years). A company may use a different life if it discloses the justification.
  • Method: SLM or WDV, the company's choice, applied consistently per class.
  • Residual value: generally not more than 5% of original cost.
  • Additions and disposals: pro-rata from the date the asset is available for use, to the date of disposal.
  • Components: under Ind AS 16, significant parts with different useful lives are depreciated separately — the turbine and the building that houses it are not one asset.
  • Unit: each asset individually.

The Income Tax book (section 32)

  • Basis: prescribed rates on the written-down value of a block of assets, not individual assets. Blocks are groups of assets of the same class with the same rate (for example, plant and machinery at 15%, computers and software at 40%, furniture at 10%, buildings at 10% or 5%).
  • Method: WDV only.
  • Additions: full-year depreciation if the asset is put to use for 180 days or more in the year; half the rate if fewer than 180 days.
  • Disposals: sale proceeds reduce the block's WDV; no gain or loss on an individual asset unless the block is exhausted or ceases to exist.
  • Additional depreciation: 20% in the first year for new plant and machinery in manufacturing, subject to conditions. Not available to companies that have opted for the concessional tax rates under section 115BAA or 115BAB.

Why a spreadsheet struggles

None of this is conceptually hard. The difficulty is doing it for 8,000 assets, every month, with additions, transfers, disposals and the two books drifting apart. The errors we find most often when we take over a register:

  1. Pro-rata done by month, not by day. Schedule II is from the date available for use. A machine capitalised on the 3rd and one on the 28th get the same month's charge in most spreadsheets. Immaterial on one asset; material on a year's additions.
  2. The 180-day rule applied to the invoice date. The test is the date the asset was put to use. An asset invoiced in September and commissioned in November gets half-rate, not full.
  3. Disposals removed from the Companies Act book but not the tax block. The block's WDV stays overstated, tax depreciation is over-claimed, and it surfaces in a scrutiny assessment years later.
  4. Componentisation skipped. A ₹4 crore machine depreciated as one line over 15 years, when its control system has a 6-year life and its structure 25. The Companies Act charge is wrong in both directions at different points of the asset's life.

What a register should produce without manual work

From the same asset master: a Schedule II depreciation statement by class with opening WDV, additions, disposals, charge for the year and closing WDV; a block-wise tax depreciation statement in the Form 3CD format; a reconciliation of the difference, which is your deferred tax working. If producing those three takes more than an afternoon, the register is doing too little of the work. SBC FIX-TAG keeps both books on every asset and computes them monthly, but the test applies to any system: can it give the auditor and the tax team the same asset, two ways, from one source of truth.