WDV Depreciation Explained: What It Is, How It Works, and Why Indian Law Mandates It

If you run a company in India and own physical assets, there is a reasonable chance you have heard of WDV — Written Down Value. There is also a reasonable chance that the explanation you got was something like "it is the declining balance method" and nothing more.

That is technically accurate but practically useless. Because WDV in the Indian context is not just a calculation approach. It is a legal requirement, a tax instrument, and a financial reporting standard all rolled into one. And getting it wrong — or not getting it at all — has consequences that show up at audit time or, worse, in your income tax assessment.

This article explains what WDV actually is, how the numbers work, why the law mandates it, and what it means for how you manage and track your assets day to day.

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What Written Down Value actually means

The name is more descriptive than it sounds. "Written down" is accounting language for reducing the value of something on paper. "Written Down Value" is the value to which the asset has been written down — its current book value after accumulated depreciation.

The WDV method is the approach used to calculate how much to write it down each year.

Here is the core mechanic: WDV applies a fixed percentage rate to the current book value of the asset, not to its original cost. That distinction is what makes WDV different from Straight Line Method, and it is what produces the curve that finance teams either love or find confusing depending on which side of year 3 they are on.

An example to make it concrete:

You buy a piece of equipment for ₹10,00,000. The applicable WDV rate is 25%.

The rate is the same every year — 25%. But the depreciation amount keeps falling because it is applied to a smaller and smaller base. Year 1 hits hard. By year 5, the annual charge is less than a third of what it was in year 1.

This is by design, not a quirk. And it reflects something real about how many assets actually behave.

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Why front-loading makes sense for most assets

Think about the last time your organization bought a batch of laptops. In year 1, they are current-generation hardware, running smoothly, full productivity. By year 3, they are getting slow. By year 5, the IT team is patching compatibility issues and some of them have died entirely.

The economic value of that laptop to your organization was not evenly distributed across 5 years. It was front-loaded. Most of the productive value came in the first two years. SLM treats each year equally. WDV reflects the actual curve — heavy early, tapering off.

The same logic applies to vehicles. A commercial vehicle bought this year is worth significantly more on the resale market today than it will be in three years. The depreciation curve should match that. WDV does. SLM does not.

This is not just a philosophical argument for WDV. It is the reason regulators chose it as the mandated method for technology assets, vehicles, and machinery — because it is the more accurate representation of how those assets actually lose value.

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The formula and where the rates come from

The WDV rate is not a number you pick. Under Indian accounting standards, it is derived from two inputs: the useful life of the asset and the residual value at end of life.

The formula:

WDV rate = 1 − (Residual value % ÷ 100) ^ (1 ÷ Useful life in years)

Under Schedule II of the Companies Act 2013, the residual value is fixed at 5% of original cost for all asset classes. So the rate depends entirely on the useful life specified in Schedule II.

Working through a few examples:

Computers and software — useful life 3 years:

WDV rate = 1 − (0.05) ^ (1/3)
         = 1 − 0.3684
         = 0.6316 = 63.16%

Vehicles — useful life 8 years:

WDV rate = 1 − (0.05) ^ (1/8)
         = 1 − 0.6877
         = 0.3123 = 31.23%

Plant and machinery — useful life 15 years:

WDV rate = 1 − (0.05) ^ (1/15)
         = 1 − 0.8190
         = 0.1810 = 18.10%

You do not need to derive these yourself — Schedule II effectively defines them once you know the useful life. The full table of Schedule II rates for common asset classes:

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What the law actually says

There are two separate legal frameworks that reference WDV for Indian companies. They operate independently and are not always aligned.

Companies Act 2013 — Schedule II

Schedule II governs depreciation for financial reporting purposes — what appears in your financial statements. It does not mandate WDV specifically. It gives companies a choice: WDV or SLM.

What Schedule II does mandate is the useful life to be used for each asset class. If you choose SLM, you use Schedule II's useful lives with SLM. If you choose WDV, you use Schedule II's useful lives with WDV, and the 5% residual floor applies.

Companies can deviate from Schedule II's useful lives if they can demonstrate that a different useful life is more appropriate — but this requires disclosure and justification in the financial statements. In practice, most companies use the Schedule II lives without deviation.

Income Tax Act — Section 32 and Appendix I

The Income Tax Act is less flexible. For most asset blocks, WDV is mandated for tax computation. You cannot choose SLM for your income tax return.

The Income Tax Act uses a block asset concept — assets of the same class are grouped together, additions and disposals are netted within the block, and WDV is computed on the net block. This differs from the asset-by-asset approach under the Companies Act, which is one of the reasons the two calculations often diverge.

The practical implication for most Indian companies:

This is why many Indian companies end up maintaining two depreciation calculations: one for the annual report, one for the IT return. If you use SLM for your Companies Act reporting, you will always need a separate WDV calculation for your tax return. If you use WDV for both, the calculations are more aligned — though the block asset vs. individual asset treatment still creates differences.

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WDV versus SLM: the numbers side by side

Same asset. ₹10,00,000, 8-year useful life, 5% residual (₹50,000 floor). WDV rate: 31.23%.

Two things jump out from that table.

In year 1, WDV recognizes ₹3,12,300 of depreciation compared to SLM's ₹1,18,750. That is 2.6 times more depreciation in the first year. If you are computing taxable income under the Income Tax Act, that difference directly reduces your tax liability in year 1.

By year 7, WDV is only charging ₹33,061 compared to SLM's ₹1,18,750. The positions have reversed — SLM is now producing more depreciation per year. But by that point, WDV has already recognized 85% of the depreciable amount.

Both methods reach the same end point — the 5% residual floor of ₹50,000. They just take very different paths to get there.

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The three situations where WDV gets complicated

1. Mid-year acquisitions

The Companies Act requires depreciation to be charged on a pro-rata basis for assets acquired or disposed of during the year. An asset purchased on 1 October in a financial year ending 31 March will get 6 months of depreciation in the first year.

Under WDV, the pro-rata calculation applies to the first year only. From the second year, the full annual rate applies to whatever the closing WDV was at the end of the first year.

2. Revaluation of assets

When an asset is revalued upward — permitted under Indian AS and IFRS — the WDV calculation resets to the revalued amount. Future depreciation is charged on the new, higher base. This can significantly increase the annual depreciation charge post-revaluation and is a common source of confusion when comparing depreciation figures across years.

3. Additions to existing assets

Capital expenditure on an existing asset — an upgrade, a major repair that extends useful life — gets added to the asset's current WDV, and depreciation continues from that new base. The rate does not change. The clock does not reset. The useful life may or may not be revised depending on the nature of the addition.

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What this means for how you track assets

WDV creates a specific requirement that SLM does not: the book value at the end of each year becomes the input for the next year's calculation. This means the depreciation for any given year cannot be calculated without knowing the correct closing WDV of the previous year.

In a spreadsheet, this is manageable for a small number of assets. With hundreds or thousands of assets across multiple categories, each with different useful lives and acquisition dates, it becomes a serious operational problem.

The practical requirements for managing WDV correctly:

• Every asset needs its acquisition date recorded precisely, not just the financial year of acquisition
• Every asset needs its original cost recorded, since WDV rate always applies to a base that traces back to that original cost
• The closing WDV of each year needs to be preserved — not just the current year figure
• Disposals need to be processed promptly because the gain or loss on disposal is calculated against the WDV at disposal date, not the original cost
• Mid-year additions need the pro-rata calculation applied correctly in the first year

None of this is complicated in principle. But all of it requires a system that treats depreciation as a continuous calculation, not a periodic exercise.

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Getting it set up correctly from the start

The most expensive WDV mistakes happen at the beginning — wrong useful lives, missing residual values, assets grouped into the wrong category.

A few things worth checking when you configure WDV for your asset categories:

Confirm the useful life against Schedule II. Not the life you think is reasonable — the life Schedule II specifies for that asset class. If you want to deviate from Schedule II, that is allowed but requires disclosure.

Lock in the 5% residual. It is the legal minimum under Schedule II and should be the default for all WDV categories in an Indian entity. Do not leave it at zero.

Separate asset classes properly. Computers are not office equipment. Vehicles are not plant and machinery. The rates differ significantly, and mixing asset classes into a single category to simplify configuration produces the wrong numbers for most of the assets in it.

Decide early whether you will use the same method for Companies Act and tax. If you use SLM for the annual report and WDV for the IT return, you will need both calculations maintained. That is a legitimate choice — but it needs to be a deliberate one, not something discovered at filing time.

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WDV is one of those things that seems complicated until you have worked through it once, at which point it is entirely logical. A rate applied to a declining base. Front-loaded depreciation that tapers off. A 5% residual floor. A legal requirement that applies to most asset blocks under the Income Tax Act.

The calculation is simple. The operational discipline to maintain it accurately, across every asset, across every year, without a spreadsheet that drifts — that is where most organizations run into trouble.

For a comparison of how WDV performs against SLM and Double Declining Balance across the full asset life, see SLM vs WDV vs Double Declining Balance.