The Most Useful Guide on Understanding the Depreciation on Furniture as Per the Companies Act
The Most Useful Guide on Understanding the Depreciation on Furniture as Per the Companies Act
Depreciation under Section 32 of the Income Tax Act, 1961 allows tax deduction on the tangible and intangible items that are subject to value decline when used for business or other professions. The cost is calculated based on WDV (Written Down Value) of each block of items and has a certain rates like 15% percent for plant and machinery, 40% on computers, 5% on residential buildings, 10% on furniture, and 25% on intangible items.
There is also depreciation on furniture as per companies act that we will be discussing as well and it involves certain consideration and is not as simple as Section 32 of the Income Tax Act.
If the theory seems too complex, then it’s better that you first understand what depreciation is.
What is Depreciation?
In simpler words, Depreciation is the decline in the value of the tangible items that people use for their business purposes and other professions, which can be furniture, appliances, machinery, and other things. These tangible items lose their value over time, but as per the Income Tax Act, businesses can claim depreciation on them as a mandatory deduction in their profit and loss account.
There are mainly two ways through which depreciation is claimed, one is the WDV (Written Down Value) method, which is also the most commonly used method across all industries. Another method is the SLM (Straight-Line) method, which is calculated based on the power generation and consumption.
The same act also allows additional depreciation on the items in the year of purchase, but covers certain new assets used mainly for manufacturing and production business, and conditions are applied.
Depreciation Rate on Furniture
Now that you have understood the concept of depreciation, let’s break down how the furniture depreciation rate is calculated. Furniture, too, is a tangible asset, which means it is subject to wear and tear with a declining rate in its value. However, it acts as an important factor for every business that exists there.
Furniture and fixtures are considered tangible items by accountants and are put under separate items on budgetary documents and financial statements. With the loss in value with the passing time, this loss of value makes a ground for the deduction in the company’s profit and loss statement as allowed by the Income Tax Act.
However, keep in mind that different types of furniture have different tenure and life, and companies can apply for deduction against the depreciation for more than one accounting period.
Understanding Depreciation on Furniture as Per the Companies Act
Depreciation on furniture is also claimed as per the Companies Act 2013, under which the deduction against the depreciation can be claimed on the furniture purchase after 1st April, 2014. It only mentions the useful life of the asset and nothing else. Abiding by Part “C” of Schedule II of the Companies Act 2013, below are the assumptions that are considered when calculating the depreciation rate of the furniture.
- Residual value, which is calculated by taking 5% of the initial cost.
- The useful life of the assets.
To understand better, here is the breakdown of the depreciation value based on both methods:
| Category of Furniture and Fittings | Useful Life (Years) | Rate (Straight-Line Method) | Rate (Written Down Value Method) |
| General furniture and fittings | 10 | 9.50% | 28.89% |
| Specialized furniture | 8 | 11.88% | 31.23% |
How to Calculate Depreciation Rate?
As there are two methods to calculate the depreciation rate of the furniture, WDV and SLM, we will discuss both here.
When calculating the rate of depreciation via the WDV method, here is the formula:
Rate of Depreciation (R) = 1 – [s/c]1/n
S = scrap value at the end of the useful life
N = useful life of the asset
C = written down value in the present
When calculating the rate of depreciation via the SLM method, here is the formula:
Depreciation = Original Cost – Residual Value or Salvage cost / Useful Life.
However, there can be errors when calculating the rates via both methods, and to avoid the maximum errors, use the online calculator as it offers convenience like no other. All the details that you require to calculate the rate is the cost of the assets, residual value, useful life, and method of calculating.
Understanding Depreciation on Furniture as Per the Income Tax Act
As we have mentioned earlier here, that depreciation on furniture is allowed under Section 32 of the Income Tax Act, 1961, the evaluation has to be done based on the prescribed rules. The same act also recognizes the fitting, which includes fans, sockets, wiring, and light fixtures.
Starting from the financial year 2017-2018, the depreciation rate on furniture has changed, and earlier it was fixed at 15% and the revised rate is 10%. Based on Section 32(1), this value is calculated as per the WDV (Written Down Value) method of a block of assets. These assets belong to the category of the class of tangible assets. The depreciation rate is subject to differences based on the type, calculation method, and useful life.
To know the exact depreciation rate on your furniture assets, here is how you do it:
- Visit https://incometaxindia.gov.in/pages/charts-and-tables.aspx
- Look for the search bar option on the website and type “depreciation rate.”
- Click on the “Search” to view the entire list of items and their depreciation rates.
Final Words
Both Section 32 of the Income Tax Act, 1961, and the Companies Act 2013 influence all the Indian businesses using furniture as their assets, and if you too, are running one, it is very important that you understand how depreciation on furniture works and how you can claim it for your organization.
FAQs
What is the rate of depreciation for furniture?
The rate of depreciation for furniture is 10%, which was revised in the 2017-2018 financial year.
What is the depreciation rate for furniture and fixtures as per the Companies Act 2013?
There is no fixed depreciation rate for furniture and fixtures as per the Companies Act 2013. The cost is influenced by the useful life and the methods applied.
Is furniture 5 or 7 years’ depreciation?
The depreciation period for furniture is not fixed at either 5 years or 7 years and depends on the applicable law and act.
What is the rule of depreciation as per the Companies Act?
The rule of depreciation as per the Companies Acts is based on the residual value with 5% of the initial cost, useful life, and the method.
How do I calculate depreciation on furniture?
There are two different methods to calculate depreciation on furniture, WDV and SLM, both have different formulas.
How to calculate depreciation as per the Companies Act WDV?
To calculate the depreciation as per the Companies Act WDV, apply this formula: Rate of Depreciation (R) = 1 – [s/c]1/n
What is a reasonable depreciation rate for furniture?
There is no concept of a reasonable depreciation rate for furniture, and the standard depreciation rate stands at 10%.
How to calculate the depreciation rate?
As there are two different ways to calculate the depreciation rate, there are two different formulas: for WDV Rate of Depreciation (R) = 1 – [s/c]1/n, and for SLM, Depreciation = Original Cost – Residual Value or Salvage cost / Useful Life.