Priya quit her UX job at a startup in October 2025 to freelance. First purchase as a one-woman business: a M4 MacBook Pro on a 12-month no-cost EMI through HDFC — ₹2,20,000 (₹18,330 × 12 months). She also paid ₹39,600 in GST as part of the sticker price.
Her friend Karthik, who runs a small Pvt Ltd, tells her at chai: "Bro, full expense, claim it in your ITR. You'll save 30% of two lakhs — easy ₹66k tax cut."
Priya files her ITR thinking ₹66k refund. The notice that follows asks her to re-file with depreciation, not full expense. What did Karthik get wrong?
- Capital assets used in business — laptop, camera, vehicle, furniture — cannot be claimed in full in year 1. They depreciate over years under Section 32.
- Computers / laptops / printers depreciate at 40% per year, WDV (Written Down Value) method. So ₹2.2L laptop → ₹88,000 depreciation Y1, ₹52,800 Y2, ₹31,680 Y3, and so on.
- Half-rate rule: if the asset is used < 180 days in the year of purchase, only 50% of the year's depreciation. October purchase = ~165 days till March → half rate → ₹44,000, not ₹88,000.
- If you split between personal and business use, depreciation is pro-rated by business-use percentage. 70% business → 70% of computed depreciation.
- The GST on the laptop (~₹39,600) is a separate game. You can claim it as ITC only if you're GST-registered, and the asset is used for taxable business supplies.
- If you file under presumptive Section 44ADA (50% of receipts deemed profit), you can't separately claim depreciation. The presumptive rate already includes it.
Sec 32 — the depreciation rule, plain English
The principle: a laptop you buy today helps you earn income for 3-5 years, not just this year. So the tax system spreads the cost over that period. You claim a slice of the cost as expense each year. The slice shrinks over time (WDV method) until the asset's "book value" approaches zero.
The slice each year = WDV at start × depreciation rate.
Computers / laptops
Block: 40%
Includes desktops, laptops, printers, scanners, software (capitalised). Phones are a separate category. Tablets generally treated as computers. 40% WDV per year.
Plant & machinery
Block: 15%
General office machines, cameras, equipment, A/Cs, mobile phones (per recent CBDT clarification), motor vehicles (15% for cars; 30% for taxis/commercial). 15% WDV.
Furniture & fittings
Block: 10%
Office desks, chairs, electrical fittings, fixtures. 10% WDV.
For a freelance designer, almost everything she buys for work falls into one of these three blocks. There's no separate per-asset depreciation; assets are grouped into "blocks" of the same rate and depreciated together.
The half-rate rule — the seasonal trap
Sec 32 has one critical wrinkle: if you bought and started using the asset for less than 180 days in the year of purchase, you only get 50% of the year's depreciation for that year.
- Bought 1 April → used full year → full rate (40% for laptop).
- Bought 30 September → used > 180 days → full rate.
- Bought 1 October → used 182 days → just barely full rate (count the days carefully).
- Bought 15 October → used ~167 days → half-rate (20%).
- Bought 1 January → used 90 days → half-rate (20%).
The cutoff date for full-rate eligibility is roughly 2 October each year (182 days from 31 March backwards). Buy on 2 Oct or earlier in October → full rate. Later → half rate. Many freelancers find out about this rule the year after they buy expensive equipment in November.
If you're planning a major business purchase in December and can move it to September, you save the half-rate hit. For a ₹2L laptop at 40% block: full-rate depreciation Y1 = ₹80k, half-rate Y1 = ₹40k. Differential = ₹40k × marginal tax rate ≈ ₹12-15k savings just by timing. Doesn't apply if EMI cash flow ties you to a specific month.
Priya's actual math (year-by-year)
Cost: ₹2,20,000 (incl. GST, assuming no GST registration → can't claim ITC). Bought 15 Oct 2025. Used 167 days till FY end → half-rate.
Business-use proportion: 80% (Priya uses the laptop mostly for client work but also for personal Netflix, photos, family video calls). So depreciation × 80%.
- FY 25-26 (Y1): WDV ₹2,20,000 × 40% × ½ × 80% = ₹35,200 claimed as expense. Closing WDV: ₹2,20,000 − ₹35,200 = ₹1,84,800.
- FY 26-27 (Y2): WDV ₹1,84,800 × 40% × 80% = ₹59,136 claimed. Closing WDV: ₹1,25,664.
- FY 27-28 (Y3): WDV ₹1,25,664 × 40% × 80% = ₹40,212. Closing WDV: ₹85,452.
- FY 28-29 (Y4): WDV ₹85,452 × 40% × 80% = ₹27,345. Closing WDV: ₹58,107.
- FY 29-30 (Y5): WDV ₹58,107 × 40% × 80% = ₹18,594. Closing WDV: ₹39,513.
- ... and so on. The block never quite goes to zero unless sold or scrapped.
Total deduction over 5 years ≈ ₹1,80,487 (of ₹2,20,000 cost). At 30% slab + 4% cess (Priya's slab if business income takes her there), tax saving over 5 years ≈ ₹56,300. Not the ₹66k her friend promised, and not all in year 1.
The GST input credit — a parallel game
If Priya has GST registration (because turnover > ₹20L or because she takes one client outside Karnataka and Sec 24(i) fires), she can claim the GST paid on the laptop as input tax credit in her GSTR-3B. ₹39,600 ITC offsets her output GST liability.
Critical: ITC on capital goods has a separate Sec 17(5) check. Laptop for business use → ITC eligible. Laptop used 50/50 personal-business → ITC needs reversal pro-rata under Rule 43.
If she's not GST-registered, the GST is part of the asset cost — adds to the depreciation base. No ITC, but the depreciation benefit is slightly bigger because of the higher cost base.
The 44ADA wrinkle — depreciation gets absorbed
If Priya files under presumptive scheme Section 44ADA (50% of gross receipts deemed profit, available to professionals with receipts ≤ ₹75L), she cannot separately claim depreciation. The presumptive rate already includes it.
BUT — Section 44ADA further says: depreciation is deemed to have been allowed. So the WDV of the laptop block still reduces every year as if she had claimed. When she eventually sells the laptop or moves out of 44ADA, the lower WDV affects her gain/loss calculation.
For most early-stage freelancers, 44ADA is the simpler choice — the deemed 50% expense allowance more than covers actual expenses, including depreciation. Track WDV separately for your records, but don't try to claim it as a line item in ITR-4.
Things that get this wrong — common mistakes
- Claiming the full cost in year 1. Karthik's advice. Year 1 you get only 40% (or 20% if half-rate). Tax officer will recompute and add back.
- Claiming the EMI as expense. The principal is part of asset cost (capitalised). Only the EMI interest is a deductible expense — under Sec 36(1)(iii) — separate from depreciation. For 0% / no-cost EMIs, interest is ₹0 → only depreciation matters.
- Ignoring the half-rate rule. Many freelancers buy in November and claim full 40%. AO catches this and reverses.
- Skipping business-use apportionment. If you use the laptop 50% for personal, you can only claim 50% depreciation. Honest apportionment also protects you in audit.
- Forgetting the asset register. Sec 32 requires you to maintain a basic asset register: date of purchase, cost, opening WDV, depreciation, closing WDV. Spreadsheet is fine.
The funny historical wrinkle — why 40% for laptops?
Computer / laptop depreciation in India was raised from 25% to 40% in 2016, partly to encourage faster turnover of digital equipment in a fast-moving tech economy. Plant & machinery stayed at 15%. The 40% rate is generous by global standards — the US uses 5-year MACRS (effectively ~20% straight-line average) for computers. The Indian rate reflects an acknowledgement that laptops are obsolete in ~3 years in practice.
The trade-off: the 40% rate is on WDV, so a ₹1L laptop never fully zeroes out on the books even after 10 years (it asymptotes to a small residual). To clear it, you either sell/scrap the asset (block-of-assets accounting balances out the gain/loss) or write it off when the value becomes negligible.
Quick answers
Yes, as a revenue expense (not depreciation). If you use the internet 70% for work, claim 70% of the monthly bill as business expense. Same for electricity, mobile bill, AWS / cloud subscriptions. Keep proof.
Mobile phones used to fall into the 15% block. CBDT notifications have clarified that smartphones are NOT computers — they stay in the 15% plant-and-machinery block. So a ₹1L phone → ₹15k depreciation Y1 (or ₹7.5k half-rate).
Block-of-assets accounting: reduce the sale price from the block's WDV. If WDV - sale value > 0, you keep depreciating on the new lower WDV. If sale value > WDV, the excess is taxable as Short-Term Capital Gain (Sec 50). Most casual laptop sales don't generate STCG because resale value < WDV.
No — you depreciate the BLOCK, not individual assets. All laptops + printers + scanners go into one "computers" block. Additions add to opening WDV; sales reduce WDV. One depreciation calculation per year per block.
You can opt out of 44ADA in any year — but once you opt out, you can't opt back in for 5 years (Sec 44ADA(4)). Switching is a one-way door for that period. Plan the timing.
When you might want help
Two situations: (1) You've just bought significant business assets and want to set up a clean asset register + decide 44ADA vs ITR-3. (2) You've already filed claiming full asset cost and received a 143(1) intimation flagging the issue — we'll prepare the rectification or response.
Freelancer with business equipment?
Asset register setup, depreciation schedule, GST ITC reconciliation, presumptive vs regular ITR decision. Fixed scope, fixed fee.
"Priya" and the numbers shown are composite illustrations. Your specific depreciation will depend on actual cost, purchase date, business-use %, and chosen filing scheme.