Depreciation Rate on Building as per Income Tax Act

Under the income tax act of building, the depreciation allowance is provided. Since the word “Building” has not been defined in the Income Tax Act, it is defined according to the ordinary grammatical meaning which go hand in hand with the present judicial interpretations. As per the Oxford Dictionary, the word ”Building” refers to a structure which has a roof and walls like a factory or a house. In this blog, we will learn about depreciation rates for a Building.

Depreciation Rates on buildings

A building which has a structure with roof and walls, is known as a building under Income Tax Act. These may  be a house or a factory. But, on the basis of various notifications and case laws, the items that are listed below can also be categorised as buildings in order to charge depreciation allowance from them under the Income Tax Act:

1. Roads that are laid inside the premises of a factory which acts like links or provide a path to the buildings.
2.  Walls or fencings
3. Process warehouses
4. Compounded Walls and Driveways
5. Landscaping
6. Toll roads that are constructed by an assessee
7. Hoarding structures that can be of use in outdoor advertising
8. Tube Wells and Wells

Land is not included in a building because land does not depreciate. Therefore, it can be said that any sort of expenditure that is incurred by an assessee for land can not be considered to be a part of the cost of constructing a building. Furthermore, the depreciation is prohibited in respect of the premium that is paid for land that is leasehold. Also, this amount is not a part of the cost of the land.

Depreciation Rate for Buildings

The different types of rates that falls under the categorization of Depreciation Rate for Buildings are listed below:

5% Depreciation Rate

This depreciation rate is applicable for residential premises. Those buildings which are of use mainly in the Residential purposes can be charged a 5 depreciation rate of 5% under Income Tax Act. This is not applicable for boarding houses and hotels.

10% Depreciation Rate

All those kinds of buildings that are not used for residential purposes, can be charged with a depreciation of 10%. In case, the built-up floor area of the building is used for residential purposes, such buildings are deemed to be a building which is mainly used for residential purposes.

100% Depreciation Rate

• Water Treatment Facility Building:

Those buildings that are gained on or after September 1, 2022 in order to install machinery and plant which form water supply projects of water or water treatment systems, which are also put out to the business to provide infrastructure facilities under Section 80IA can be easily charged with  a depreciation rate of 100%.

• Wooden structures:

It is also possible to allow 100% Depreciation rate on temporary wooden structures and sheds of time as they are totally temporar elections.

Computing Depreciation Rate for Building

At the time of computing the Depreciation for buildings, the above mentioned blocks can be easily formed for the particular building on the basis of depreciation rates and classes of assets. Amount of Depreciation  for an income is calculated on the basis of the written down value of  a block of a particular asset. If someone gained an asset in the previous year, then, the actual cost of that asset to the assessee will be used to calculate the depreciation amount. In case the asset was gained even before the previous year, then the actual cost of the asset to the assessee will be taken to calculate the amount of depreciation after reducing all the depreciation that has been charged.

Conclusion

In this blog, we came to know about the Depreciation rate for buildings. We learnt about the true essence of depreciation when it comes to buildings and the various categories in which it can be applied to various buildings.