Companies and Co-Ops Keep Normal Depreciation Under Concessional Tax Regimes. But Lose Additional

(INDIA) — Indian companies and resident co-operative societies weighing India’s concessional tax regimes under sections 115BAA, 115BAB and 115BAD face a clear trade-off: lower tax rates remain available, but additional depreciation does not.

Normal depreciation under section 32 of the Income-tax Act, 1961 continues even after an eligible assessee opts for those regimes. Additional depreciation under section 32(1)(iia), however, falls away.

The distinction affects taxable business income, tax liability and cash flow, particularly for manufacturers and power-sector businesses that invest heavily in new plant and machinery. It also shapes how companies compare the regular regime with Concessional tax regimes before making an election.

Under section 32, Normal depreciation is the regular deduction available for business or professional assets such as buildings, machinery, plant, furniture and certain intangible assets used for business or profession. It is generally calculated on the written down value of the relevant block of assets at prescribed rates.

Common rates include 10% for certain buildings and furniture, 15% for general plant and machinery, 40% for computers, and 25% for intangible assets, subject to the applicable depreciation rules. Those deductions survive under the lower-rate regimes.

Additional depreciation is different. Section 32(1)(iia) allows an extra deduction over and above Normal depreciation, generally for an assessee engaged in manufacture or production of any article or thing, or in generation, transmission or distribution of power.

The general rate is 20% of the actual cost of eligible new machinery or plant. If the asset is acquired and put to use for less than 180 days in the year, only 10% is allowed in that year and the balance 10% in the immediately succeeding year.

A simple example shows the difference. If a manufacturing company buys eligible new plant and machinery for ₹10,00,000, and Normal depreciation applies at 15%, the regular deduction is ₹1,50,000; if Additional depreciation also applies at 20%, that adds ₹2,00,000, taking total first-year depreciation to ₹3,50,000.

That extra deduction is not available for every depreciable asset. Additional depreciation generally does not apply to ships, aircraft, second-hand machinery or plant, machinery or plant installed in office premises, machinery or plant installed in residential accommodation or guest house, office appliances, road transport vehicles, or assets whose whole actual cost is otherwise allowed as deduction while computing business income.

The restriction keeps the incentive focused on new productive plant and machinery used in manufacturing, production and power-sector activities. The deduction is meant as an investment incentive, not a blanket benefit for all assets on which depreciation can be claimed.

Sections 115BAA, 115BAB and 115BAD each offer lower tax rates, but each also requires the assessee to forgo specified deductions and incentives. Section 115BAA lets a domestic company opt for a concessional tax rate of 22%, excluding surcharge and cess, subject to conditions.

Section 115BAB gives certain new domestic manufacturing companies a concessional rate of 15% for eligible business income, subject to prescribed conditions. Other income may be taxed at a different rate.

Section 115BAD applies to resident co-operative societies and permits taxation at a concessional rate if the society gives up specified deductions and incentives. These regimes do not extend to individuals, partnership firms or LLPs.

The statutory treatment of depreciation under these provisions is narrow and specific. Section 115BAA refers to depreciation under section 32 “except clause (iia)”, and section 115BAB uses similar wording.

That means normal depreciation remains allowable, while Additional depreciation does not. The drafting also distinguishes clauses that use “without” to deny specified deductions from clauses that permit income to be computed “by claiming depreciation” under section 32 except clause (iia).

The policy logic is straightforward. Concessional tax regimes offer a lower rate in exchange for the loss of some deductions, exemptions and incentives, and Additional depreciation is one of those incentives.

The structure prevents a double benefit: a lower tax rate plus an accelerated deduction on new investment. Businesses deciding whether to opt in therefore need to compare the benefit of the lower headline rate against the value of the deductions they give up.

If an assessee does not opt for sections 115BAA, 115BAB or 115BAD, the normal regime continues. For Assessment Year 2026-27, a domestic company with turnover or gross receipts not exceeding ₹400 crore in the relevant previous year is taxed at 25%, while any other domestic company is taxed at 30%, excluding surcharge and cess.

Surcharge and health and education cess apply on top of that. Domestic companies may be subject to surcharge at 7% or 12%, while companies opting for sections 115BAA or 115BAB are subject to surcharge at 10%, and health and education cess is 4% on tax plus surcharge.

Eligibility also remains limited by entity type. Sections 115BAA and 115BAB are for domestic companies, while section 115BAD is for resident co-operative societies.

Individuals, HUFs and certain other non-company taxpayers fall under a separate concessional regime in section 115BAC. Firms and LLPs follow their own tax structure and cannot opt for sections 115BAA, 115BAB or 115BAD.

The same broad distinction carries into the new Income-tax Act, 2025. Depreciation shifts to section 33, which reorganises the rules but preserves the separation between ordinary depreciation and the extra deduction for eligible new assets.

Section 33(8) provides an additional deduction in respect of depreciation for new machinery or plant where the assessee is engaged in manufacture or production of any article or thing, or in generation, transmission or distribution of power. Section 33(9) sets the quantum at 20% of actual cost, or 10% plus 10% where the asset is acquired and put to use for less than 180 days.

That continuity matters for tax planning. The legal framework changes location and wording, but the concept remains intact: Normal depreciation is the regular deduction, and Additional depreciation is a separate incentive tied to new productive investment.

Before choosing among Concessional tax regimes, a company or co-operative society should prepare a comparative computation that measures tax under the normal regime against tax under the concessional regime. The exercise has to capture the loss of Additional depreciation, the effect of any other deductions and incentives being forgone, and the longer-run effect on future years.

Brought-forward losses, unabsorbed depreciation and MAT implications also affect that arithmetic where applicable. A lower rate can look attractive on its face, but the calculation changes quickly for businesses that rely on depreciation-linked incentives to reduce taxable income after large capital spending.

For manufacturers and power-sector assessees, the issue often turns on timing as much as headline tax cost. Additional depreciation accelerates the deduction into the year of investment, while the concessional option cuts the rate but removes that acceleration.

The law leaves little room for confusion on the central point. Under sections 115BAA, 115BAB and 115BAD, Normal depreciation stays; Additional depreciation does not.