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Schedule II of the Companies Act, 2013

Schedule II of the Companies Act, 2013 describes the useful life of assets that is used to charge depreciation on tangible assets. The Depreciation Rates – Companies Act 2013 is different from rate charged as per Income Tax Act. The prescribed rate as per Income Tax Act is useful for calculation of taxable income and tax payable on the income thereon.

What is not covered in Schedule II of the Companies Act, 2013

Schedule II is applicable to all companies except the followings:

• Intangible Assets – Notified Accounting Standards will apply
• Statutory bodies enacted by act of parliament
• Other than companies like Limited Liability Partnership (LLP), Firms, Proprietorship form of business

SLM – STRAIGHT LINE METHOD OF DEPRECIATION

Straight line method (‘SLM’) of depreciation is a simple method where equal amount is charged or amortized every year. This is calculated basis net of assets cost and residual value of assets divided by useful live of the assets.

WDV – WRITTEN DOWN VALUE METHOD OF DEPRECIATION

Written Down Value (‘WDV’) method is calculated based on fixed rate charged on the net carrying value of the assets. In initial years, the depreciation amount charged is higher than latter part of depreciable period. This is also known as reducing balance method or diminishing value method.

Schedule II – Part ‘A’ of the Companies Act, 2013

What is depreciation as defined in Companies Act

1. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value. The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.

2. For the purpose of this Schedule, the term depreciation includes amortisation.

3. Without prejudice to the foregoing provisions of paragraph 1,—

(i) In case of such class of companies, as may be prescribed and whose financial statements comply with the accounting standards prescribed for such class of companies under section 133 the useful life of an asset shall not normally be different from the useful life and the residual value shall not be different from that as indicated in Part C, provided that if such a company uses a useful life or residual value which is different from the useful life or residual value indicated therein, it shall disclose the justification for the same.

(ii) In respect of other companies the useful life of an asset shall not be longer than the useful life and the residual value shall not be higher than that prescribed in Part C.

(iii) For intangible assets, the provisions of the Accounting Standards mentioned under sub-para (i) or (ii), as applicable, shall apply.

Schedule II – Part ‘B’ of the Companies Act, 2013

4. The useful life or residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirements of this Schedule. Depreciation Rates – Companies Act 2013

Schedule II – Part ‘C’ of the Companies Act, 2013

Subject to Part ‘A’ & Part ‘B’ mentioned above, the useful lives of tangible assets are mentioned below

DEPRECIATION RATES AS PER COMPANIES ACT, 2013

Depreciation as per Companies Act is allowed on the basis of useful life of assets and residual value of the assets.

Nature of Assets	Useful Life Years	SLM Rate %	WDV Rate %
(I) Buildings [NESD]
(a) Building (other than factory buildings) RCC Frame Structure	60	1.58%	4.87%
(b) Building (other than factory buildings) other than RCC Frame Structure	30	3.17%	9.50%
(c) Factory buildings	30	3.17%	9.50%
(d) Fences, wells, tube wells	5	19.00%	45.07%
(e) Other (including temporary structure, etc.)	3	31.67%	63.16%
(II) Bridges, culverts, bunkers, etc. [NESD]	30	3.17%	9.50%
(III) Roads [NESD]
(a) Carpeted Roads
(i) Carpeted Roads – RCC	10	9.50%	25.89%
(ii) Carpeted Roads – other than RCC	5	19.00%	45.07%
(b) Non-carpeted roads	3	31.67%	63.16%
(IV) Plant and Machinery
IV-(a) General rate applicable to Plant and Machinery not covered under Special Plant and Machinery
IV-(a)-(i) Plant and Machinery other than continuous process plant not covered under specific	15	6.33%	18.10%
IV-(a)-(ii) Continuous process plant for which no special rate has been prescribed under (ii) below	8	11.88%	31.23%
IV-(b) Special Plant and Machinery
IV-(b)-(i) Plant and Machinery related to production and exhibition of Motion Picture Films
1 Cinematograph films – Machinery used in the production and exhibition of cinematograph films, recording and reproducing equipments, developing machines, printing machines, editing machines, synchronizers and studio lights	13	7.31%	20.58%
2 Projecting equipment for exhibition of films	13	7.31%	20.58%
IV-(b)-(ii) Plant and Machinery used in glass
1 Plant and Machinery except direct fire glass melting furnaces – Recuperative and regenerative glass melting furnaces	13	7.31%	20.58%
2 Plant and Machinery except direct fire glass melting furnaces – Moulds [NESD]	8	11.88%	31.23%
3 Float Glass Melting Furnaces [NESD]	10	9.50%	25.89%
IV-(b)-(iii) Plant and Machinery used in mines and quarries Portable underground machinery and earth moving machinery used in open cast mining	8	11.88%	31.23%
IV-(b)-(iv) Plant and Machinery used in Telecommunications [NESD]
1 Towers	18	5.28%	15.33%
2 Telecom transceivers, switching centres, transmission and other network equipment	13	7.31%	20.58%
3 Telecom – Ducts, Cables and optical fibre	18	5.28%	15.33%
4 Satellites	18	5.28%	15.33%
IV-(b)-(v) Plant and Machinery used in exploration, production and refining oil and gas [NESD]
1 Refineries	25	3.80%	11.29%
2 Oil and gas assets (including wells), processing plant and facilities	25	3.80%	11.29%
3 Petrochemical Plant	25	3.80%	11.29%
4 Storage tanks and related equipment	25	3.80%	11.29%
5 Pipelines	30	3.17%	9.50%
6 Drilling Rig	30	3.17%	9.50%
7 Field operations (above ground) Portable boilers, drilling tools, well-head tanks, etc.	8	11.88%	31.23%
8 Loggers	8	11.88%	31.23%
IV-(b)-(vi) Plant and Machinery used in generation, transmission and distribution of power [NESD]
1 Thermal / Gas / Combined Cycle Power Generation Plant	40	2.38%	7.22%
2 Hydro Power Generation Plant	40	2.38%	7.22%
3 Nuclear Power Generation Plant	40	2.38%	7.22%
4 Transmission lines, cables and other network assets	40	2.38%	7.22%
5 Wind Power Generation Plant	22	4.32%	12.73%
6 Electric Distribution Plant	35	2.71%	8.20%
7 Gas Storage and Distribution Plant	30	3.17%	9.50%
8 Water Distribution Plant including pipelines	30	3.17%	9.50%
IV-(b)-(vii) Plant and Machinery used in manufacture of
1 Sinter Plant	20	4.75%	13.91%
2 Blast Furnace	20	4.75%	13.91%
3 Coke Ovens	20	4.75%	13.91%
4 Rolling mill in steel plant	20	4.75%	13.91%
5 Basic Oxygen Furnace Converter	25	3.80%	11.29%
IV-(b)-(viii) Plant and Machinery used in manufacture of non ferrous metals
1 Metal pot line [NESD]	40	2.38%	7.22%
2 Bauxite crushing and grinding section	40	2.38%	7.22%
3 Digester Section [NESD]	40	2.38%	7.22%
4 Turbine [NESD]	40	2.38%	7.22%
5 Equipments for Calcinations [NESD]	40	2.38%	7.22%
6 Copper Smelter [NESD]	40	2.38%	7.22%
7 Roll Grinder	40	2.38%	7.22%
8 Soaking Pit	30	3.17%	9.50%
9 Annealing Furnace	30	3.17%	9.50%
10 Rolling Mills	30	3.17%	9.50%
11 Equipments for Scalping, Slitting, etc. [NSED]	30	3.17%	9.50%
12 Surface Miner, Ripper Dozer, etc. used in mines	25	3.80%	11.29%
13 Copper refining plant [NSED]	25	3.80%	11.29%
IV-(b)-(ix) Plant and Machinery used in medical and surgical operations [NESD]
1 Electrical Machinery, X-ray and electrotherapeutic apparatus, and accessories thereto, medical, diagnostic equipments, namely, Cat-scan, Ultrasound Machines, ECG Monitors, etc.	13	7.31%	20.58%
2 Other Equipments	15	6.33%	18.10%
IV-(b)-(x) Plant and Machinery used in manufacture of pharmaceuticals and chemicals [NESD]
1 Reactors	20	4.75%	13.91%
2 Distillation Columns	20	4.75%	13.91%
3 Drying equipments / Centrifuges and Decanters	20	4.75%	13.91%
4 Vessel / Storage tanks	20	4.75%	13.91%
IV-(b)-(xi) Plant and Machinery used in civil construction
1 Concreting, Crushing, Piling Equipments and Road Making Equipments	12	7.92%	22.09%
2 Heavy Lift Equipments –
– Cranes with capacity more than 100 tons	20	4.75%	13.91%
– Cranes with capacity less than 100 tons	15	6.33%	18.10%
3 Transmission line, Tunnelling Equipments [NESD]	10	9.50%	25.89%
4 Earth-moving equipments	9	10.56%	28.31%
5 Others including Material Handling / Pipeline / Welding Equipments [NESD]	12	7.92%	22.09%
IV-(b)-(xii) Plant and Machinery used in salt works [NESD]	15	6.33%	18.10%
(V) Furniture and fittings [NESD]
(a) General furniture and fittings	10	9.50%	25.89%
(b) Furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other education institutions, libraries, welfare centres, meeting halls, cinema houses, theatres and circuses and furniture and fittings let out on hire for used on occasion of marriages and similar functions	8	11.88%	31.23%
(VI) Motor Vehicles [NESD]
(a) Motor cycles, scooters and other mopeds	10	9.50%	25.89%
(b) Motor buses, motor lorries, motor cars and motor taxies used in a business of running them on hire	6	15.83%	39.30%
(c) Motor buses, motor lorries, motor cars and motor taxies other than those used in a business of running them on	8	11.88%	31.23%
(d) Motor tractors, harvesting combines and heavy vehicles	8	11.88%	31.23%
(e) Electrically operated vehicles	8	11.88%	31.23%
(VII) Ships [NESD]
(a) Ocean-going ships
(i) Bulk Carriers and liner vessels	25	3.80%	11.29%
(ii) Crude tankers, product carriers and easy chemical carriers with or without conventional	20	4.75%	13.91%
(iii) Chemicals and Acid Carriers
1 With Stainless steel tanks	25	3.80%	11.29%
2 With other tanks	20	4.75%	13.91%
(iv) Liquefied gas carriers	30	3.17%	9.50%
(v) Conventional large passenger vessels which are used for cruise purpose also	30	3.17%	9.50%
(vi) Coastal service ships of all categories	30	3.17%	9.50%
(vii) Offshore supply and support vessels	20	4.75%	13.91%
(viii) Catamarans and other high speed passenger for ships or boats	20	4.75%	13.91%
(ix) Drill ships	25	3.80%	11.29%
(x) Hovercrafts	15	6.33%	18.10%
(xi) Fishing vessels with wooden hull	10	9.50%	25.89%
(xii) Dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging	14	6.79%	19.26%
(b) Vessels ordinarily operating on inland waters
(i) Speed boats	13	7.31%	20.58%
(ii) Other vessels	28	3.39%	10.15%
(VIII) Aircrafts or Helicopters [NESD]	20	4.75%	13.91%
(IX) Railway siding, locomotives, rolling stocks, tramways and railway used by concerns, excluding railway	15	6.33%	18.10%
(X) Ropeway structures [NESD]	15	6.33%	18.10%
(XI) Office equipments [NESD]	5	19.00%	45.07%
(XII) Computers and data processing units [NESD]
(a) Servers and networks	6	15.83%	39.30%
(b) End user devices, such as, desktops, laptops, etc.	3	31.67%	63.16%
(XIII) Laboratory equipment [NESD]
(a) General laboratory equipment	10	9.50%	25.89%
(b) Laboratory equipments used in education institutions	5	19.00%	45.07%
(XIV) Electrical Installations and Equipment [NESD]	10	9.50%	25.89%
(XV) Hydraulic woks, pipelines and sluices [NESD]	15	6.33%	18.10%

Notes as per Schedule II of the Companies Act, 2013 Depreciation Rates – Companies Act 2013

• “Factory buildings” does not include offices, godowns, staff quarters.

• Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.

• The following information shall also be disclosed in the accounts, namely:
• depreciation methods used; and
• the useful lives of the assets for computing depreciation, if they are different from the life specified in the Schedule.

• Useful life specified in Part C of the Schedule is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.

Depreciable Amount

• Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Ordinarily, the residual value of an asset is often insignificant but it should generally be not more than 5% of the original cost of the asset.

• The useful lives of assets working on shift basis have been specified in the Schedule based on their single shift working. Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for double shift, the depreciation will increase by 50% for that period and in case of the triple shift the depreciation shall be calculated on the basis of 100% for that period.

• From the date this Schedule comes into effect, the carrying amount of the asset as on that date—
  • shall be depreciated over the remaining useful life of the asset as per this Schedule;
  • after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil. Depreciation Rates – Companies Act 2013

• ‘‘Continuous process plant’’ means a plant which is required and designed to operate for twenty-four hours a day.

Disclosure requirements in Financials Statements

The following disclosure are required in financial statements:

• Estimated Useful lives of assets considered in financial statements.
• Depreciation method followed in compilation of financial statements.
• Gross value, Depreciation and Net value of assets
• Tangible and intangible break up of assetsepreciation Rates – Companies Act 2013

Refer MCA’s Schedule II of the Companies Act, 2013