Rule 25 of the Draft Income-tax Rules, 2026 prescribes the manner of computing depreciation under section 33 of the Act. Depreciation on blocks of assets specified in Appendix I is to be calculated on the written down value (WDV) at the prescribed rates, provided the assets are used for business or profession during the tax year. However, for specified taxpayers—including domestic companies opting for concessional tax regimes under sections 199(3), 200(5) or 202(2), certain individuals, HUFs, AOPs, BOIs and artificial juridical persons taxable under section 202(1), and resident cooperative societies opting under sections 203(5) or 204(2)—the depreciation allowance shall not exceed 40% of the WDV, subject to conditions. In contrast, assets covered under Appendix II are eligible for depreciation on actual cost basis, and the total depreciation claimed over different years cannot exceed the actual cost of the asset.
The Rule further grants specific flexibility to undertakings engaged in power generation, allowing them to opt for depreciation under Appendix I instead of Appendix II, provided the option is exercised before the due date for filing the return under section 263(1)(c). Once exercised, this option becomes irrevocable for subsequent years. Additionally, new machinery or plant installed on or after 1 April 1987 for manufacturing using technology developed in government-financed laboratories, public sector companies, universities, or institutions recognized by the Secretary, Department of Scientific and Industrial Research (DSIR) qualifies for 40% WDV depreciation. This benefit is subject to acquisition of technology rights, furnishing of a prescribed DSIR certificate, and exclusion of items listed in Schedule XIII.
Extract of Rule No. 25 of Draft Income-tax Rules, 2026
Rule 25
Depreciation.
(1) Subject to the provisions of sub-rule (7), the allowance under section 33(3) of the Act, in respect of depreciation of any block of assets specified in column (2) of the Table in Appendix I to these rules shall be calculated at the percentages specified in the column (3) of the said Table on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the tax year.
(2) The allowance under section 33(3) of the Act in respect of depreciation of any block of assets with respect to the persons mentioned in Column B of the Table below shall not exceed forty per cent of the written down value of such block of assets if conditions mentioned in column C thereof are fulfilled —
Table
| S no | Person | Conditions to be fulfilled |
| A | B | C |
| 1 | Domestic Company | which has exercised option under:-
Section 199(3); or Section 200(5); or Section 202(2) of the Act. |
| 2 | Individual or Hindu undivided family, Association of persons or a body of individuals, whether incorporated or not Artificial Juridical Person referred in section 2(77)(g) of the Act. | whose income is chargeable to tax under section 202(1) of the Act |
| 3 | Cooperative society resident in India | which has exercised option under: –
a. Section 203(5); or b. Section 204(2) of the Act. |
(3) The allowance under section 33(2) of the Act in respect of depreciation of assets specified in column (2) of the Table in Appendix II to these rules shall be calculated at the percentage specified in the column (3) thereof on the actual cost to the assessee as are used for the purposes of the business of the assessee at any time during the tax year.
(4) The aggregate depreciation allowed under section 33(2) of the Act in respect of any asset for different tax years shall not exceed the actual cost of the said asset.
(5) The undertaking specified in section 33(2) of the Act may, at its option, be allowed depreciation under sub-rule (1) read with Appendix I instead of the depreciation specified in Appendix II, if option is exercised before the due date for furnishing the return of income under section 263(1)(c) for the tax year in which it begins to generate power.
(6) Any option under sub-rule (5) once exercised shall be final and shall apply to all the subsequent tax years.
(7) Where any new machinery or plant is installed during the tax year commencing on or after the 1st day of April, 1987, for the purposes of business of manufacture or production of any article or thing and such article or thing—
a. is manufactured or produced by using any technology (including any process) or other know- how developed in, or
b. is an article or thing invented in, a laboratory owned or financed by the Government or a laboratory owned by a public sector company or a University or an institution recognised in this behalf by the
Secretary, Department of Scientific and Industrial Research, Government of India, such plant or machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of 40 per cent of written down value, if the following conditions are fulfilled, namely:-
i. the right to use such technology (including any process) or other know- how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner;
ii. the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any tax year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory ; and
iii. the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Schedule XIII to the Act.
(8) For the purposes of sub-rule (7): –
a. “laboratory financed by the Government” means a laboratory owned by any body including a society registered under the Societies Registration Act, 1860 and financed wholly or mainly by the Government;
b. “public sector company” means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 2(45) of the Companies Act, 2013; and
c. “University” means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956, to be a University for the purposes of that Act.
