Depreciation on mobile application.

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Devang Sheth (Querist)
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13 July 2016 We have purchased mobile application (software) for business purpose. So at which rate depreciation will be applicable on the asset?

Devang Sheth

Devang Sheth (Querist)
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16 July 2016 plz answer me anyone. urgent help needed

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 Depreciation on software, including mobile applications, is governed by the provisions of the Income Tax Act, 1961, and the Companies Act, 2013 in India. Here’s how depreciation is typically treated for software assets:

### Income Tax Act, 1961

Under the Income Tax Act, software including mobile applications fall under the category of "computer software". The depreciation rate applicable for computer software is 60% under the Income Tax Rules, Schedule XIV.

### Companies Act, 2013

According to Schedule II of the Companies Act, 2013, software, being an intangible asset, is categorized under "Intangible Assets". The Act prescribes a useful life for intangible assets of 10 years from the date of acquisition. However, the Act allows companies to use a different useful life if supported by technical advice or any other justification.

### Depreciation Calculation

1. **Depreciation Rate**:
- **Income Tax Act**: Depreciation is typically calculated at 60% of the cost of software (including mobile applications) under the WDV (Written Down Value) method.
- **Companies Act**: The depreciation rate for intangible assets like software is not specified explicitly in percentage terms in the Act itself. However, companies typically align with the Income Tax rules for consistency unless they have a specific justification for a different useful life.

2. **Method**:
- **Income Tax Act**: Depreciation is usually calculated under the WDV method, where depreciation is applied on the reducing balance of the asset each year.
- **Companies Act**: Companies can choose between the Straight Line Method (SLM) or the WDV method for calculating depreciation on intangible assets, including software. Most commonly, the WDV method is used for software as well, similar to the Income Tax treatment.

### Practical Considerations

- **Documentation**: It’s important to maintain proper documentation of the purchase cost, useful life determination, and basis for selecting the depreciation method.
- **Compliance**: Ensure compliance with both Income Tax regulations and Companies Act requirements regarding asset classification, depreciation rates, and method.

### Consultation

For precise application and compliance with tax laws and accounting standards, especially when dealing with specific assets like software, consulting with a qualified tax advisor or chartered accountant is recommended. They can provide tailored advice based on the latest legal provisions and specific circumstances of your business.

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