Depreciation is a crucial aspect of asset management for businesses, impacting financial statements and tax liabilities. In India, depreciation is calculated differently under the Income Tax Act, 1961, and the Companies Act, 2013, depending on its purpose—tax deductions or financial reporting. Understanding these methods and their implementation can help businesses manage assets more effectively.
Methods of Depreciation Calculation in India
A. Income Tax Act, 1961
- Method: Written Down Value (WDV).
- Application: Depreciation is applied to blocks of assets, grouped by type.
- Formula: Depreciation=Opening WDV × Depreciation Rate
- Rates: Vary by asset category (e.g., buildings, machinery, vehicles).
- Special Rules:
- Assets used for less than 180 days are eligible for 50% depreciation.
- Additional depreciation (20%) is provided for new machinery in specific industries.
B. Companies Act, 2013
- Methods:
- Straight-Line Method (SLM):
- Depreciation is evenly spread over the useful life.
- Depreciation per year = (Cost – Residual Value)/Useful Life
- WDV:
- Similar to the Income Tax Act but the calculation is different.
- Rate of depreciation = 1- [Residual % ^ (1/Useful Life)]
- Depreciation per year = Initial Value × (1-Rate) ^ Cumulative Years
- Straight-Line Method (SLM):
- Useful Life: Prescribed in Schedule II, but companies can adjust based on specific circumstances.
- Residual Value: Should not exceed 5% of the asset’s original cost.
Challenges in Manual Depreciation Calculation
Calculating depreciation accurately is time-consuming and error-prone, especially when dealing with multiple assets and complex rules. Manual tracking can lead to:
- Misclassification of assets
- Errors in applying rates and useful lives
- Compliance issues with tax and financial regulations
How INFOMAN SERV Simplifies Asset Management
The INFOMAN SERV Asset Management Application is designed to eliminate the complexities of depreciation calculation, offering businesses an easy, accurate, and compliant solution. Here’s how:
1. Automated Depreciation Calculation
INFOMAN SERV supports both WDV and SLM methods, applying appropriate rates and useful lives based on the selected framework (Income Tax Act or Companies Act).
2. Customizable Rules and Policies
Businesses can define depreciation policies, adjust useful lives, and manage residual values to meet specific needs or industry standards. The depreciation calculations can also be done on a monthly, quarterly, bi-annually or annual basis.
3. Comprehensive Reporting
Generate detailed reports on accumulated depreciation, net book value, and asset performance with just a few clicks.
4. Centralized Asset Management
Manage all assets across categories in one platform, from acquisition to disposal, with real-time updates on depreciation schedules.
5. Asset Maintenance
The application has a comprehensive process using ticket creation to track complaint against the assets. One can track its repair condition, assign the task of repairs/review to any team member ensuring a complete tracking of delays. One can also track assets which have gone out of premises for repairs to ensure there is a strict adherence to process within the organisation.
Why Choose INFOMAN SERV?
Managing depreciation is no longer a hassle. With INFOMAN SERV, businesses save time, reduce errors, and gain confidence in their asset management. The intuitive platform ensures all calculations are accurate, compliant, and efficient, empowering organizations to focus on growth.
Ready to simplify your asset management? Explore how INFOMAN SERV – Asset Management Application and learn can transform your depreciation tracking today!