Depreciation rates as per companies act 2013

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P. Shah (Querist)
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06 September 2016 can anyone explain me regarding depreciation rates as per companies act, 2013 . I find it very complicated . I have checked in other sites for the same but they showing rates as per SLM and rates as per wdv.both rates are different and how they find out these rates. for eg Bldg other than factory useful life 60 rate 1.58% as per SLM rate 4.87% as per WDV

P. Shah

P. Shah (Querist)
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08 September 2016 No one have time to solve my query.please help it out.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 Depreciation rates under the Companies Act, 2013 are specified in Schedule II. These rates vary depending on the type of asset and the method of depreciation used (Straight Line Method - SLM or Written Down Value Method - WDV). Here’s a brief explanation of how these rates are applied:

1. **Schedule II of the Companies Act, 2013:**
- Schedule II provides useful lives for various categories of assets. These useful lives are used to determine the annual depreciation charge.
- The Act mandates that companies follow either the SLM or WDV method based on the useful life specified in Schedule II.

2. **Depreciation Rates:**
- **Straight Line Method (SLM):** Under SLM, depreciation is charged uniformly over the useful life of the asset. The depreciation rate is calculated as 100% divided by the useful life in years.
- For example, if an asset has a useful life of 10 years, the SLM rate would be 10% per annum (100% / 10 years).
- **Written Down Value Method (WDV):** Under WDV, depreciation is charged at a fixed percentage on the reducing balance of the asset’s book value each year. The rates for WDV are typically higher in earlier years and reduce over time.
- The WDV rate is calculated based on the statutory formula provided in the Act.

3. **Calculation of Rates:**
- The rates mentioned (1.58% for SLM and 4.87% for WDV) represent the annual depreciation percentage applied to the asset’s cost or written down value.
- These rates are derived from the useful life and method of depreciation specified in Schedule II. For example, the rate of 1.58% for SLM and 4.87% for WDV for buildings other than factories would correspond to the useful life and depreciation method prescribed in Schedule II.

4. **Choosing between SLM and WDV:**
- Companies can choose either SLM or WDV based on their preference or the nature of the asset. However, once a method is chosen, it must be consistently applied unless there is a change in the useful life of the asset necessitating a change in the method.

5. **Complexity:**
- The complexity arises from the need to understand the specific provisions of Schedule II and how they apply to different categories of assets. Companies often seek guidance from chartered accountants or tax consultants to ensure compliance and proper calculation of depreciation.

In conclusion, the depreciation rates under the Companies Act, 2013 are prescribed in Schedule II and vary based on the asset’s category and the chosen method of depreciation (SLM or WDV). Understanding these rates requires careful reference to Schedule II and possibly consultation with financial professionals to ensure accurate application.

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