Depreciation Rate For Building

Depreciation allowance as provided by the Income Tax Act for building. However, the term “building” is not defined in the Income Tax Act and must be interpreted using the ordinary grammatical sense as well as the available judicial interpretations. The Oxford English Dictionary defines a building as “a structure with a roof and walls, such as a house or factory.” In this article, we will look at the rate of depreciation for buildings.

Depreciation For Building

A building, as defined by the Income Tax Act, is any structure with a roof and walls, such as a house or factory. However, according to various case laws and notifications, the following items can also be classified as buildings to charge the depreciation allowance under the Income Tax Act.

  • The road is laid within the factory premises as a link or as an approach to the buildings.
  • Walls or fencing.
  • Warehouses that process goods.
  • Driveways and retaining walls
  • Landscaping.
  • An assessee built a toll road.
  • Outdoor advertising hoarding structures
  • Tube wells and wells.

Land does not depreciate, so a building does not include land. As a result, any expenditure incurred by an assessee for land cannot be included in the cost of building construction. Furthermore, depreciation is not permitted in the case of premiums paid for leasehold land because such amounts do not constitute part of the cost of land.

Depreciation Rate For Building

Depreciation Rate For Building

The building depreciation rate is divided into three rates, which are as follows:

Residential Real Estate – 5% Rate of Depreciation

Buildings that are primarily used for residential purposes, except hotels and boarding houses, are eligible for a 5% depreciation rate under the Income Tax Act.

Buildings have a 10%  depreciation rate.

All types of buildings that are not used for residential purposes are subject to a 10% depreciation rate. A building is considered to be primarily used for residential purposes if the built-up floor area used for residential purposes is greater than 66.66 per cent.

Building for Water Treatment Facilities – Depreciation Rate of 100%

Buildings purchased on or after September 1, 2002, to install machinery and plant as part of a water supply project or water treatment system, and which are used for the business of providing infrastructure facilities under Section 80-IA, are eligible for a special 100 per cent depreciation rate.

Wooden Structures – Depreciation Rate of 100%

Temporary wooden structures and tin sheds are eligible for a 100% depreciation rate because they are purely temporary erections.

Building Depreciation Calculation

  • When calculating depreciation for a building under Income Tax, the above blocks can be formed for the building based on asset classes and depreciation rate. Income tax depreciation is calculated based on the written-down value of a group of assets. 
  • If an asset was purchased in the previous year (new asset), the assessee’s actual cost would be used to calculate depreciation. 
  • If the asset was acquired before the previous year, depreciation would be calculated using the actual cost to the assessee less all depreciation charged.