Schedule II depreciation: useful lives, residual value and methods under the Companies Act, 2013

Indian companies depreciate property, plant and equipment in their financial statements under Schedule II to the Companies Act, 2013. Schedule II does not hand you rates. It gives useful lives, a ceiling on residual value and a choice of two methods, and leaves the company to apply them. This guide sets out what the Schedule actually says, with the numbers checked against its text, and where it stops and Income Tax depreciation takes over.

What Schedule II covers

Schedule II, headed "Useful Lives to Compute Depreciation", is referred to by section 123 of the Act. It has three parts. Part A defines depreciation as the systematic allocation of the depreciable amount of an asset over its useful life, where the depreciable amount is cost less residual value, and sets the general rules. Part B says that where a regulator constituted under an Act of Parliament, or the Central Government, notifies a useful life or residual value for a specific asset for accounting purposes, that figure applies instead. Part C lists the useful lives, followed by notes on pro rata charges, components, residual value, shifts and transition.

Two practical consequences follow. Depreciation includes amortisation for the purposes of the Schedule, but for intangible assets the applicable accounting standards decide the treatment rather than Part C. And because the Schedule gives lives, not rates, the rate tables you see online are calculations made from those lives, not text from the Act.

Useful lives of common asset classes

These are the Part C lives most offices, factories and service businesses use. NESD means no extra shift depreciation is permitted for that class.

Part C also has a long list of special plant and machinery for specific industries, such as telecom, power, steel, pharmaceuticals and civil construction. If your business is in one of those, check the specific entry before using the general 15 year rate. Note 1 adds that "factory buildings" does not include offices, godowns or staff quarters, and Note 8 defines continuous process plant as plant required and designed to operate for twenty-four hours a day.

Residual value and the 5% rule

Paragraph 3(i) of Part A says the useful life of an asset shall not ordinarily be different from Part C, and the residual value shall not be more than five per cent of the original cost. Note 5 puts it more softly: residual value is often insignificant but should generally be not more than 5% of original cost. In practice most companies use 5% or nil.

SLM or WDV, with a worked example

The Schedule allows either the straight line method (SLM) or the written down value method (WDV). Note 3 requires the financial statements to disclose the methods used. Take a laptop bought for ₹80,000, a Schedule II life of 3 years and a residual value of 5%, which is ₹4,000. The depreciable amount is ₹76,000.

SLM charges the same amount every year: ₹76,000 divided by 3 is ₹25,333.33 a year.

WDV applies a fixed rate to the opening book value each year. The rate that takes cost down to residual value over the useful life is rate = 1 - (residual / cost)^(1/n). Here that is 1 - (4,000 / 80,000)^(1/3), which is 1 - 0.05^(1/3), or about 63.16%.

Both methods land on the same ₹4,000 residual value; WDV front-loads the charge. The WDV figures use the unrounded rate. If you round the rate to 63.16%, the final year needs a small adjustment of a few rupees so the book value finishes at exactly ₹4,000. Assets bought or sold part way through the year are depreciated pro rata from the date of addition or up to the date of disposal, under Note 2.

Component accounting

Note 4 says the Part C life is for the whole asset. Where the cost of a part is significant to the total cost and its useful life differs from the rest of the asset, the life of that significant part must be determined separately. This has been mandatory for financial years beginning on or after 1 April 2015. Typical examples are a furnace lining replaced every few years inside a plant with a much longer life, or a lift within a building. For most office equipment it will not arise.

Extra shift depreciation

Note 6 says lives for assets working on a shift basis assume single shift working. Except for NESD classes, if an asset is used for any time during the year on a double shift, depreciation for that period increases by 50%; for a triple shift it increases by 100%. Since buildings, furniture, vehicles, office equipment, computers and continuous process plant are all NESD, this mainly affects general plant and machinery.

Example: a machine costing ₹10,00,000 with a 15 year life and 5% residual value has an SLM charge of ₹63,333.33 a year on single shift. Run on a double shift for the whole year, the charge becomes ₹95,000; on a triple shift, ₹1,26,666.67. If it ran a double shift for only four months, the extra charge is 50% of four months' depreciation, which is ₹10,555.56. Keeping shift records per machine is what makes this claim supportable.

Using a different useful life

Before August 2014, the Schedule set lives as maximums for some companies. The amendment notified by the Ministry of Corporate Affairs on 29 August 2014 rewrote paragraph 3(i), so the Part C lives are now indicative. A company may adopt a different useful life or residual value, but the financial statements must disclose the difference and give a justification supported by technical advice. Note 3 also requires disclosure of useful lives used where they differ from the Schedule.

Technical advice usually means an internal or external engineer's assessment of how the asset is used, maintained and replaced. Your own records help: replacement history, repair frequency and actual years in service are evidence that a laptop fleet is genuinely retired at four years, or that delivery vans are worn out sooner than eight. Companies following Ind AS should also remember that Ind AS 16 requires useful life and residual value to be reviewed at least at each financial year end.

Transition, briefly

Note 7 dealt with assets held when Schedule II came into effect: the carrying amount was depreciated over the remaining useful life under the Schedule, and where the remaining life was nil, the carrying amount, after retaining the residual value, could be recognised in opening retained earnings. That is now history for almost every company, but it explains some old adjustments in long-lived registers.

Companies Act depreciation vs Income Tax depreciation

Book depreciation and tax depreciation are separate calculations with separate rules. Schedule II depreciation goes into the financial statements. Income Tax depreciation was governed by section 32 of the Income-tax Act, 1961 and the rates in the Income-tax Rules, 1962; the Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and keeps the block of assets approach on written down value.

On tax figures alone, the same ₹80,000 laptop put to use for at least 180 days would attract ₹32,000 in year one, ₹19,200 in year two and ₹11,520 in year three, leaving ₹17,280 in the block. In reality it is pooled with every other computer in the block, so no individual laptop has a tax book value of its own.

A short checklist

1. 1Map each asset category to a Part C entry, including any industry-specific special plant and machinery line.
2. 2Decide residual value policy (5% or nil is common) and apply it consistently.
3. 3Choose SLM or WDV per class and disclose the methods.
4. 4Identify significant components with different lives and record them separately.
5. 5Keep shift records for plant and machinery that is not NESD.
6. 6Document technical advice for any useful life that departs from Part C.
7. 7Keep tax depreciation separate, by block, in your accounting system.

Related reading on the Stackroom blog covers the straight line vs WDV choice for equipment and what a fixed asset register should contain, and the free depreciation calculator in the tools section produces a year-by-year SLM and WDV schedule for any asset.