Book Depreciation vs Income Tax Depreciation: Why They Differ

Book depreciation and income-tax depreciation are two different computations.

A common accounting mistake is to assume that depreciation charged in the financial statements should equal the amount claimed in the income-tax computation.

What is book depreciation?

Book depreciation is the depreciation recognised in the financial statements under the accounting framework applicable to the entity.

It is intended to allocate the depreciable amount of an asset over the period in which its economic benefits are consumed, subject to the applicable standard or statutory framework.

What is income-tax depreciation?

Income-tax depreciation is a statutory deduction computed under tax law.

Under the Income-tax Act, 1961, depreciation for most businesses and professions is generally computed on prescribed blocks of assets using tax rates rather than by copying the book depreciation.

For Tax Year 2026-27 onwards, the Income-tax Act, 2025 reorganises the provisions but continues a prescribed tax-depreciation framework.

Why do the figures differ?

Differences commonly arise because of:

• different depreciation rates;
• different grouping of assets;
• the tax 180-day rule;
• different treatment of disposals;
• additional depreciation where applicable;
• different recognition dates or useful lives; and
• assets or expenditure receiving different accounting and tax treatment.

Example

A computer may be depreciated in the books based on the entity's accounting policy and the relevant accounting framework.

For income tax, it is placed in the applicable tax block and depreciation is calculated at the prescribed tax rate, subject to the tax rules.

There is no reason the two annual depreciation figures must be identical.

What should the Fixed Asset Register contain?

A strong fixed-asset register should capture at least:

• asset description;
• purchase date;
• put-to-use date;
• cost;
• book asset class;
• tax block;
• additions and disposals;
• book depreciation; and
• tax-depreciation information or a link to the tax working.

Do not post tax depreciation into the financial statements

The P&L should reflect depreciation appropriate under the accounting framework used for the books.

The tax computation separately adjusts accounting profit and claims the allowable tax depreciation.

Where assureOffice fits

assureOffice Financial Builder can help maintain financial-statement PPE presentation, additions, depreciation working and closing book WDV in a structured workflow.

The tax depreciation schedule should remain separately identifiable so the accountant can reconcile opening tax WDV, additions, deletions and closing tax WDV without confusing it with book values.

If book depreciation and tax depreciation happen to match, that is fine. They should never be forced to match simply to make the working easier.