(INDIA) — Draft Income Tax Rule 25 caps depreciation at 40% of the written down value for specified taxpayers who opt for concessional tax regimes under sections 199(3), 200(5), 202(1), 202(2), 203(5), or 204(2) of the Income-tax Act.
The provision forms part of the Draft Income-tax Rules, 2026 and ties the depreciation limit to taxpayers choosing lower-rate tax options.
Rule 25 sets out how depreciation under section 33 applies to blocks of assets and then narrows how far accelerated depreciation can go for those covered by the concessional regimes.
The draft rule applies across several taxpayer categories identified by the sections it cites. Domestic companies fall within the scope when they come under sections 199(3) or 200(5).
Individuals, HUFs, AOPs, BOIs, and artificial juridical persons come within the rule through section 202(1). Resident cooperative societies are covered when they fall under sections 203(5) or 204(2).
Within that scope, Rule 25 links eligibility for the depreciation cap to conditions shown in the rule’s Table, specifically Column C. When those conditions are met, depreciation under section 33(3) cannot exceed 40% of the WDV.
The draft also anchors depreciation computation to the appendices it references. Assets listed in Appendix I are depreciated on WDV at the prescribed rates when used for the purposes of business or profession.
A separate track applies to assets in Appendix II. Those assets qualify for depreciation on an actual cost basis, and the draft rule frames that treatment within the limits set by section 33(2).
Under section 33(2), total depreciation across years cannot exceed the asset’s actual cost for Appendix II assets. The Draft Income-tax Rules, 2026 also state that aggregate depreciation under section 33(2) for any asset cannot exceed its actual cost.
Rule 25 also addresses the treatment of power generation undertakings under section 33(2). Those undertakings can opt for Appendix I depreciation instead of Appendix II.
The draft rule ties that choice to a timing condition linked to return filing. Power generation undertakings must exercise the option before the return filing due date under section 263(1)(c).
Once exercised, that choice does not change. The draft rule makes the option irrevocable.
Alongside the general framework, Rule 25 contains a specific provision for certain manufacturing-related machinery or plant. It applies to new machinery or plant installed on or after 1 April 1987.
That machinery or plant must be installed for manufacturing with technology sourced from certain institutions. The draft rule identifies government-financed laboratories, public sector companies, universities, or DSIR-recognized institutions.
When those conditions are met, the eligible new machinery or plant gets 40% WDV depreciation. The reference to 1 April 1987 sets the installation threshold for that treatment.
The design of the cap links back to the choices taxpayers make under concessional regimes. The Draft Income Tax Rule 25 approach addresses tax regime choices by limiting higher depreciation for concessional rates.
The stated rationale is alignment between the depreciation benefit and the lower tax benefits available under concessional regimes. In effect, the draft rule sets a ceiling for depreciation outcomes where those regimes apply.
By putting a clear numerical limit into the depreciation calculation, the draft rule aims to standardise the upper end of depreciation claims under section 33(3) for the covered groups. The cap is expressed as 40% of the written down value, tying the restriction to WDV-based computation.
At the same time, the Draft Income-tax Rules, 2026 preserve the distinction between WDV-based depreciation and actual-cost-based depreciation. Appendix I links depreciation to WDV at prescribed rates for business or profession use, while Appendix II uses actual cost with cumulative limits.
The draft’s Appendix II treatment pairs the actual cost method with an explicit ceiling on the total amount that can be depreciated. The total depreciation across years cannot exceed the asset’s actual cost, reinforcing the boundary set by section 33(2).
That aggregate ceiling operates as a backstop across the system described in Rule 25. Even where an asset qualifies for depreciation year after year, the cumulative figure remains constrained by the asset’s actual cost under section 33(2).
For taxpayers within sections 199(3), 200(5), 202(1), 202(2), 203(5), or 204(2), the draft rule’s Table-based conditions can determine whether the 40% ceiling applies to depreciation under section 33(3). The drafting links the cap to those conditions rather than applying it as an undifferentiated limit.
The structure of Draft Income Tax Rule 25 also reflects the way depreciation is organised by asset grouping in section 33. It prescribes depreciation computation under section 33 for blocks of assets in Appendix I on WDV at prescribed rates when used for business or profession.
Power generation undertakings receive a distinct procedural path in the draft. The option to use Appendix I rather than Appendix II hinges on action taken by a specified point, and the draft rule ties that point to the return filing due date under section 263(1)(c).
The irrevocability provision locks in the chosen depreciation method once the power generation undertaking exercises it. That drafting choice makes the initial decision determinative for subsequent years under the framework described in Rule 25.
The draft rule’s manufacturing technology provision also sits within the broader section 33 structure. It applies to new machinery or plant installed on or after 1 April 1987, and the treatment is linked to technology originating from the specified institutions.
By specifying government-financed laboratories, public sector companies, universities, and DSIR-recognized institutions, the draft rule draws a defined set of technology sources for the 40% WDV depreciation treatment. The provision focuses on installation timing and technology origin.
Across these elements, the Draft Income-tax Rules, 2026 set out a system that connects taxpayer status, asset classification, depreciation computation methods, and numeric limits. Draft Income Tax Rule 25 centres that system on the cap of 40% of the written down value where the rule’s conditions apply.
The section references embedded in the draft rule point readers to where each element sits in the wider legislative framework. For concessional regimes, the draft rule cites sections 199(3), 200(5), 202(1), 202(2), 203(5), and 204(2).
For depreciation mechanics and constraints, it cites section 33(2) and section 33(3). For the timing of the power generation choice, the draft rule ties the option to section 263(1)(c).
The appendices serve as the organising documents for asset treatment in the draft. Appendix I covers WDV depreciation at prescribed rates for assets used for business or profession, while Appendix II frames depreciation on an actual cost basis, capped by actual cost across years.
Taken together, the Draft Income-tax Rules, 2026 position Rule 25 as a limit-setting provision within a larger depreciation framework. The draft rule’s cap addresses tax regime choices by restricting higher depreciation where concessional rates apply, while maintaining separate depreciation treatments for Appendix I and Appendix II assets.
40% Written Down Value Cap Hits Depreciation Under Draft Income Tax Rule 25
India’s Draft Income-tax Rules, 2026, feature Rule 25, which limits depreciation to 40% for those under concessional tax regimes. The rule organizes assets into two appendices, capping cumulative depreciation at the asset’s actual cost. It also provides specific guidelines for power generation undertakings and manufacturing machinery using approved technology, aiming to align depreciation benefits with lower tax rates across various taxpayer categories.
