 Method: Full Comparison with Calculations, Examples & Which is Better in 2025){kind=link}
In accounting and taxation, depreciation is one of the most important non-cash expenses. It helps businesses spread the cost of fixed assets (machinery, vehicles, furniture, buildings, etc.) over their useful life.
There are two most widely used depreciation methods in India and globally:
- Straight Line Method (SLM)
- Written Down Value Method (WDV) or Diminishing Balance Method
Both are allowed under Companies Act 2013 (Schedule II), Income Tax Act 1961, and Ind AS/IFRS (with some differences).
This guide explains everything with real calculations, charts, advantages, disadvantages, tax impact, and which method you should choose in 2025.
Let’s begin!
What is Depreciation?
Depreciation is the systematic allocation of the depreciable amount of a tangible fixed asset over its useful life.
Depreciable Amount = Cost of Asset – Estimated Residual (Scrap) Value Useful Life = Number of years the asset will be productively used
1. Straight Line Method (SLM)
The simplest and most popular method.
Formula: Annual Depreciation = (Cost of Asset – Residual Value) ÷ Useful Life
Rate of Depreciation = (Annual Depreciation ÷ Cost) × 100
Example 1: Straight Line Method
Asset: Delivery Van Cost (including GST, freight, installation): ₹12,00,000 Residual Value (estimated scrap): ₹1,00,000 Useful Life: 10 years
Calculation: Depreciable Amount = 12,00,000 – 1,00,000 = ₹11,00,000 Annual Depreciation = 11,00,000 ÷ 10 = ₹1,10,000 per year Rate = (1,10,000 / 12,00,000) × 100 = 9.1667%
Depreciation Schedule (SLM)
| Year | Opening Book Value | Depreciation | Closing Book Value |
|---|---|---|---|
| 1 | 12,00,000 | 1,10,000 | 10,90,000 |
| 2 | 10,90,000 | 1,10,000 | 9,80,000 |
| ... | ... | ... | ... |
| 10 | 2,20,000 | 1,10,000 | 1,10,000 |
| Adjustment | → 1,00,000 (residual) |
Every year ₹1,10,000 depreciation → smooth and predictable expense.
2. Written Down Value (WDV) Method
Also called Diminishing Balance Method. Depreciation is charged at a fixed percentage on the reducing book value every year.
Formula: Depreciation = Book Value at beginning × Rate %
Note: Rate is much higher than SLM to reach near residual value.
Example 2: Same Van under WDV Method
Cost: ₹12,00,000 Residual Value: ₹1,00,000 Let’s assume company wants to follow 20% WDV rate (common for vehicles)
Depreciation Schedule (WDV @ 20%)
| Year | Opening WDV | Depreciation (20%) | Closing WDV |
|---|---|---|---|
| 1 | 12,00,000 | 2,40,000 | 9,60,000 |
| 2 | 9,60,000 | 1,92,000 | 7,68,000 |
| 3 | 7,68,000 | 1,53,600 | 6,14,400 |
| 4 | 6,14,400 | 1,22,880 | 4,91,520 |
| 5 | 4,91,520 | 98,304 | 3,93,216 |
| 10 | 1,34,218 | 26,844 | 1,07,374 |
After 10 years, book value ≈ ₹1,07,000 (very close to residual)
Side-by-Side Comparison Table (Same Asset)
| Year | SLM Depreciation | WDV Depreciation (20%) | Profit & Loss Impact (Higher/Lower expense) |
|---|---|---|---|
| 1 | 1,10,000 | 2,40,000 | WDV reduces profit more |
| 2 | 1,10,000 | 1,92,000 | WDV still higher |
| 5 | 1,10,000 | 98,304 | SLM now higher |
| 10 | 1,10,000 | 26,844 | SLM much higher |
Total depreciation over 10 years under both methods will be nearly ₹11,00,000 (only timing differs).
Advantages & Disadvantages
| Parameter | Straight Line Method (SLM) | Written Down Value (WDV) |
|---|---|---|
| Calculation | Very simple | Slightly complex |
| Depreciation amount | Equal every year | High in initial years, reduces later |
| Book value reduction | Uniform | Fast in early years |
| Matches revenue pattern | Not always (unless usage uniform) | Better (assets more efficient initially) |
| Tax benefit | Lower in early years | Higher tax saving in early years |
| Used in Companies Act | Yes (Schedule II rates) | Yes (but mostly for tax) |
| Income Tax Act 1961 (India) | Allowed only for few assets (e.g. books) | Default method for most assets (Block system) |
| Ind AS / IFRS | Mostly SLM | Allowed but less common |
Which Method Gives More Tax Benefit?
WDV is far better for tax saving in early.
In above example:
| Year | Tax Saved @ 30% (SLM) | Tax Saved @ 30% (WDV) | Extra Tax Saving with WDV |
|---|---|---|---|
| 1 | 33,000 | 72,000 | +39,000 |
| 2 | 33,000 | 57,600 | +24,600 |
| 1–5 Total | 1,65,000 | 2,78,912 | +1,13,912 |
Businesses prefer WDV under Income Tax because of huge early tax deferment.
Depreciation Rates – Companies Act vs Income Tax (2025)
| Asset Type | Companies Act (SLM) Useful Life | SLM Rate | Income Tax (WDV) Block Rate |
|---|---|---|---|
| Building (RCC) | 60 years | 1.58% | 10% |
| Furniture | 10 years | 9.5% | 10% |
| Computers | 3 years | 31.67% | 40% |
| Motor Cars | 8 years | 11.88% | 15% |
| Plant & Machinery | 15 years | 6.33% | 15% or 30%/40% (varies) |
Note: Income Tax follows Block of Assets concept under WDV only (except few cases).
Practical Example 3: Computer Purchased in FY 2024-25
Cost: ₹80,000 (including GST – ITC claimed separately) Date: 1st Oct 2024 Residual: Nil
A. Under Companies Act (SLM) Useful life 3 years → Rate 31.67% 2024-25 (half year): ₹80,000 × 31.67% × 6/12 = ₹12,668 Full year: ₹25,336
B. Under Income Tax (WDV 40% block) 2024-25: ₹80,000 × 40% × 50% (half year rule) = ₹16,000 2025-26: ₹48,000 × 40% = ₹19,200
Again, WDV gives higher deduction.
When Should You Choose SLM?
- When you prepare financial statements for banks/investors (shows stable profits)
- Leasing/rental companies
- Assets with uniform usage (buildings, furniture)
- When following Ind AS/IFRS strictly
When Should You Choose WDV?
- For maximum tax benefits
- Technology assets that become obsolete fast
- Most Indian private limited companies maintain two books: Companies Act (SLM) + Income Tax (WDV)
Yes – companies legally keep dual depreciation!
Conclusion: Which Method is Better in 2025?
There is no “universally better” method. It depends on your goal:
For Tax Planning → Choose WDV (mandatory under Income Tax for most assets) For Clean Financial Statements & Loans → Choose SLM For Realistic Matching of Expenses → WDV (higher expense when asset is new and efficient)
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