Rule 25: Depreciation methods, limits and options
Rule 25 connects the depreciation allowance with the rate tables in Appendices I and II. It also sets a 40% ceiling for specified persons and regimes, an option for power undertakings, and conditions for certain machinery using laboratory technology.
Official notified Income-tax Rules, 2026Need advice on Rule 25?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
- Bare law
- Introduction
- Start with the correct appendix and asset base
- The 40% ceiling for specified persons and regimes
- Power-undertaking depreciation on actual cost
- The alternative method election and its deadline
- Special machinery using qualifying laboratory technology
- Read the definitions and retain supporting evidence
- Illustrative method and ceiling checks
- Key takeaways
- Practical checklist
- FAQs
- Glossary
- Official sources
Bare law
Rule 25 - Depreciation
(1) Subject to the provisions of sub-rule (7), the allowance under section 33(3), in respect of depreciation of any block of assets specified in column (2) of the Table in Appendix I shall be calculated at the percentages specified in the column (3) of the said Table on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the tax year.
(2) The allowance under section 33(3) in respect of depreciation of any block of assets with respect to the persons mentioned in Column B of the following Table shall not exceed 40% of the written down value of such block of assets, if conditions mentioned in column C thereof are fulfilled:—
Sl. No. Person Conditions to be fulfilled 1. Domestic company Which has exercised option under– (a) section 199(3); or (b) section 200(5); or (c) section 201(2). 2. (a) Individual or Hindu undivided family; or (b) association of persons or a body of individuals, whether incorporated or not; or (c) artificial juridical person referred to in section 2(77)(g). Whose income is chargeable to tax under section 202(1). 3. Cooperative society resident in India Which has exercised option under– (a) section 203(5); or (b) section 204(2). (3) The allowance under section 33(2) in respect of depreciation of assets acquired on or after 1st April, 1977 specified in column (2) of the Table in Appendix II, shall be calculated at the percentage specified in the column (3) thereof on the actual cost to the assessee as are used for the purposes of the business of the assessee at any time during the tax year.
(4) The aggregate depreciation allowed under section 33(2), in respect of any asset for different tax years shall not exceed the actual cost of the said asset.
(5) The undertaking specified in section 33(2) may, at its option, be allowed depreciation under sub-rule (1) read with Appendix I instead of the depreciation specified in Appendix II, if option is exercised on or before the due date for furnishing the return of income under section 263(1)(c) for the tax year in which it begins to generate power.
(6) Any option under sub-rule (5) once exercised, shall be final and shall apply to all the subsequent tax years.
(7) Where any new machinery or plant is installed during the tax year commencing on or after the 1st April, 1987, for the purposes of business of manufacture or production of any article or thing and such article or thing— (a) is manufactured or produced by using any technology (including any process) or other know- how developed in; or (b) is an article or thing invented in, a laboratory owned or financed by the Government or a laboratory owned by a public sector company or a University or an institution recognised in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India, such plant or machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of 40% of written down value, if the following conditions are fulfilled:— (i) the right to use such technology (including any process) or other know- how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner; (ii) the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any tax year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory ; and (iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Schedule XIII to the Act.
(8) For the purposes of sub-rule (7),– (a) "laboratory financed by the Government" means a laboratory owned by any body including a society registered under the Societies Registration Act, 1860 (2 of 1860) and financed wholly or mainly by the Government; (b) "public sector company" means any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in section 2(45) of the Companies Act, 2013 (18 of 2013); and (c) "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act.
Introduction
First identify the applicable asset and method. The 40% ceiling is not a universal depreciation rate, and the actual-cost method for the specified undertaking should be distinguished from written-down-value depreciation.
Rule breakdown
Start with the correct appendix and asset base
Under sub-rule (1), depreciation for the specified block of assets is calculated at the Appendix I percentage on its written down value, subject to sub-rule (7). The assets must be used for the business or profession at some time during the tax year.
Use the current applicable Appendix I entry and section 33 conditions. Rule 25 does not by itself reproduce every asset rate or remove the Act’s other allowance conditions.
The 40% ceiling for specified persons and regimes
The table in sub-rule (2) identifies domestic companies exercising the stated options under sections 199, 200 or 201; the listed individuals, HUFs, associations, bodies and artificial juridical persons chargeable under section 202(1); and resident co-operative societies exercising the stated options under section 203 or 204.
For those table cases, the allowance cannot exceed 40% of the block’s written down value. The ceiling does not raise a lower applicable rate to 40%. Verify both the person category and its corresponding regime condition.
Power-undertaking depreciation on actual cost
Sub-rule (3) deals with assets acquired on or after 1 April 1977 specified in Appendix II for section 33(2). It applies the Appendix II percentage to actual cost, where the assets are used for the business during the tax year.
Under sub-rule (4), aggregate depreciation allowed for the asset across tax years cannot exceed its actual cost. Maintain a cumulative asset-wise schedule so this lifetime limit can be checked.
The alternative method election and its deadline
The undertaking specified in section 33(2) may choose sub-rule (1) with Appendix I instead of Appendix II. Sub-rule (5) requires the option on or before the return-filing due date it identifies under section 263(1)(c), for the tax year in which power generation begins.
The notified rule’s cross-reference is reproduced as printed. Check the current Act and applicable filing deadline when implementing the election. Once exercised, the option is final and applies to subsequent tax years under sub-rule (6).
Special machinery using qualifying laboratory technology
Sub-rule (7) concerns new machinery or plant installed in a tax year commencing on or after 1 April 1987 for manufacturing or production using the stated technology or know-how, or producing an article invented in the specified laboratory. The laboratory categories and acquisition of the relevant right must be checked.
The rule treats qualifying machinery or plant as part of a block eligible for 40% written-down-value depreciation only when its conditions are fulfilled. These include acquiring the right from the laboratory owner or a person deriving title from that owner, the stated Secretary’s certificate accompanying the return, and the exclusion for manufacturing or producing Schedule XIII items.
Read the definitions and retain supporting evidence
For sub-rule (7), a government-financed laboratory includes a laboratory owned by a body, including a registered society, and financed wholly or mainly by government. Public sector company and University have the specific meanings given in sub-rule (8).
Keep the technology-rights documents, laboratory classification, prescribed certificate and product classification with the asset register. A general research label or an in-house engineering note does not replace the stated conditions.
Illustrative method and ceiling checks
Hypothetical: a listed-regime taxpayer has a block with written down value of ₹10 lakh and an otherwise applicable rate of 15%. The 40% ceiling does not convert that rate into 40%; the rate-based calculation is ₹1.5 lakh before considering other applicable Act conditions.
For an Appendix II asset with actual cost of ₹10 lakh, cumulative depreciation under section 33(2) cannot exceed ₹10 lakh. These separate examples explain the cap mechanisms and do not establish eligibility for a particular asset.
Key takeaways
Rate source matters
Use the relevant Appendix I or II entry and the correct cost base.
A ceiling is not a flat rate
The specified-regime 40% limit does not increase lower rates.
Election is final
The power-undertaking option has the stated first-generation-year deadline and applies to later years.
Technology conditions
The special machinery treatment requires all source, certificate and product conditions.
Practical checklist
- Match each asset to the appropriate current appendix entry.
- Record the taxpayer category and applicable regime option.
- Track cumulative actual-cost depreciation and the power-option evidence.
- Keep technology-rights, laboratory and certificate documents for sub-rule (7).
Avoid
- Do not use 40% as an automatic rate for every asset.
- Do not switch the final power-undertaking option annually.
- Do not omit the Act’s separate allowance conditions.
FAQs
Does every asset receive 40% depreciation under Rule 25?
No. Sub-rule (2) is a ceiling for the persons and regime conditions listed in its table. Applicable rates and eligibility must still be identified.
Can the power-undertaking option be changed each year?
No. Sub-rule (6) makes the option under sub-rule (5) final and applicable to all subsequent tax years.
What is the lifetime limit for the actual-cost allowance?
Sub-rule (4) limits aggregate depreciation allowed under section 33(2) for an asset across tax years to its actual cost.
Is any new technology-based machinery automatically eligible for the special 40% treatment?
No. Sub-rule (7) imposes the specified laboratory and rights conditions, the Secretary’s certificate requirement and the exclusion for Schedule XIII production, among its stated conditions.
Glossary
- Written down value
- The statutory value of the relevant block used for the sub-rule (1) calculation.
- Actual-cost limit
- The rule’s cumulative cap on section 33(2) depreciation for a particular asset.
- Appendix election
- The specified power undertaking’s final choice to use Appendix I instead of Appendix II under sub-rule (5).