WDV vs SLM Depreciation: Complete Guide for CA Firms in India 2025

Every Indian business that owns fixed assets must compute depreciation — but many still confuse the two permitted methods: Written Down Value (WDV) and Straight Line Method (SLM). Choosing the wrong method can inflate profits, understate tax liability, or trigger audit queries. This guide breaks down both methods with ₹ examples, compares their financial impact, and explains how to stay compliant under both the Companies Act 2013 and the Income Tax Act 1961.

What Is Depreciation and Why It Matters

Depreciation is the systematic allocation of a tangible fixed asset's cost over its useful life. It represents the economic consumption of an asset and ensures the cost is matched against the revenue it helps generate — a core principle of accrual accounting.

Two independent bodies of law govern depreciation for most Indian entities:

• Companies Act 2013 (Schedule II) — mandates useful life norms and a minimum residual value of 5% for all registered companies.
• Income Tax Act 1961 (Rule 5 + Appendix I) — prescribes WDV block rates for calculating the depreciation deduction in the ITR.

A company may book SLM depreciation in its financial statements while claiming higher WDV depreciation in its Income Tax Return. The resulting timing difference must be recognised as a Deferred Tax Liability (DTL) under AS 22 or Ind AS 12.

WDV Method: How It Works

Under the Written Down Value method, depreciation is applied to the book value at the start of each year — not the original cost. Because the base keeps shrinking, the annual charge is front-loaded: high in Year 1 and tapering off over time.

Formula

Annual Depreciation = Opening WDV × Rate%

Example — Plant & Machinery worth ₹10,00,000 at 15% WDV

Common Income Tax WDV rates: Plant & Machinery 15%, Computers & peripherals 40%, Buildings (RCC) 10%, Furniture & fittings 10%, Motor cars 15%.

When to Choose WDV

• Income Tax: WDV is the only method permitted under the Income Tax Act for most block assets — there is no choice.
• Financial statements: Preferred for assets that lose value faster in early years: computers, vehicles, and electronic equipment.
• Tax planning: Produces a higher deduction in early years, reducing taxable profit during the high-growth phase of the business.

SLM Method: How It Works

Under the Straight Line Method, the depreciable amount (cost minus residual value) is spread evenly across the asset's useful life.

Formula

Annual Depreciation = (Cost − Residual Value) ÷ Useful Life (years)

Example — Same machinery, residual value ₹50,000, useful life 10 years

Annual Depreciation = (₹10,00,000 − ₹50,000) ÷ 10 = ₹95,000 per year

The annual charge stays fixed at ₹95,000, making profit planning and budgeting straightforward.

When to Choose SLM

• Best suited for assets with uniform consumption over time: factory buildings, heavy infrastructure, and power equipment.
• Listed companies often prefer SLM for financial statements because it produces a smoother, more predictable EPS.
• Required where management can demonstrate that benefits from an asset are consumed evenly year on year.

Companies Act 2013 — Schedule II Key Points

Schedule II does not prescribe depreciation rates. It prescribes useful life and a minimum residual value of 5%. Companies compute depreciation (WDV or SLM) to write off 95% of the asset cost over the prescribed useful life.

Key rule: An asset whose Schedule II useful life has expired must still appear in the balance sheet at a nominal value of ₹1 as long as it remains in use — it cannot be written off entirely.

WDV vs SLM — Side-by-Side Comparison

Common Errors CA Firms Must Avoid

1. 1No pro-rata for mid-year additions — Depreciation must be calculated from the actual date of capitalisation, not 1 April. A machine purchased on 1 October gets only 50% of the annual charge in Year 1.
2. 2Block-level disposal errors in ITR — Under Income Tax, all assets of a class form a single block. Selling one asset reduces the block WDV; missing this step inflates the depreciation claim.
3. 3Applying IT rates in books — Never use Income Tax WDV rates (e.g. 40% for computers) in audited financial statements. Schedule II useful life governs the books.
4. 4Residual value below 5% — Unless supported by a technical assessment (such as an engineer's certificate), Schedule II requires a minimum 5% residual value.
5. 5Omitting Deferred Tax — The timing difference between book depreciation and tax depreciation creates a Deferred Tax Liability in early years. This is a mandatory disclosure under AS 22 and Ind AS 12 and is frequently queried during statutory audits.

How corpus Helps

Managing depreciation schedules across dozens of client entities in separate spreadsheets is slow and error-prone. corpus automates the entire process:

• Automated Fixed Asset Register (FAR): WDV and SLM schedules are maintained at the asset level and updated in real time as additions or disposals are recorded.
• Pro-rata calculations: The system automatically applies the correct pro-rata factor for any asset added or retired during the financial year — no manual adjustment needed.
• Income Tax block summary: A block-wise depreciation report is generated for every client, ready to feed directly into ITR-6 or ITR-3 preparation.
• Deferred tax schedule: Generated alongside the balance sheet so auditors and preparers always have a reconciliation on hand.
• End-to-end audit trail: Every depreciation journal entry links back to the original purchase invoice — no unexplained entries.

Whether you manage 5 clients or 500, corpus ensures every fixed asset is depreciated correctly, every single year.

Conclusion

WDV and SLM serve different purposes under different laws. The golden rule: use WDV for Income Tax returns (it is mandatory), and apply Schedule II useful life for financial statements under the Companies Act (choosing WDV or SLM based on the asset's consumption pattern). Always reconcile the two methods and recognise the resulting deferred tax.

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