Depreciation in taxation and accounting is the wearing out or decrease over time in the value of an asset as a result of its use, wear and tear, or obsolescence. To professionals and business entities, cellular phones utilized for business purposes constitute depreciable assets.
This blog discusses the depreciation rate applied to mobile phones under the Income Tax Act, how it should be recorded in accounting records, and what to remember when claiming it in financial statements or tax returns.
Introduction
Mobile phones are now a vital asset for personal and business use. In the business environment, mobile phones acquired for official purposes are considered assets and depreciated every year. This serves to capture the real value of the asset on the balance sheet of the company and also forms a basis for deducting depreciation as an expense in order to lower taxable income.
Depreciation, according to Indian accounting and tax rules, has to be charged at specified rates, based on the use and nature of the asset. Mobile phones belong to a general category and can be treated differently, depending on whether you are going by Companies Act rules or Income Tax regulations.
What is Depreciation and Why Does It Matter?
Depreciation is a bookkeeping technique to allocate the cost of a physical asset over its lifespan. For instance, if you buy a smartphone for Rs 30,000 and it will last for three years, depreciation enables you to claim part of this cost each year, which accounts for the decline in value because of usage and aging.
Claiming depreciation in business is significant for two reasons –
- It is the actual financial status of the business as it covers the wear and tear on assets.
- It lowers taxable income, as depreciation can be claimed as a deduction from the Income Tax Act.
Depreciation is applicable only for business assets. When a mobile is used for personal purposes, one cannot claim depreciation. When a mobile is utilized for business as well as for personal purposes, the depreciation is to be allocated proportionately.
Depreciation Under the Income Tax Act
Mobile phones under the Income Tax Act are usually placed in the block of assets called “Plant and Machinery.” The depreciation rate for such assets is 15% on a written-down value (WDV) basis.
Important Points –
- Mobile phones given to employees for official use can be depreciated.
- If a mobile phone is used partly for business purposes and partly for personal purposes, depreciation must be claimed proportionally.
- The depreciation can be claimed only by businesses or professionals who have a book of accounts.
- The asset must be applied for business activities in the relevant financial year so that depreciation is claimed.
Depreciation under the Companies Act, 2013
According to the Companies Act, 2013 and Schedule II, the useful life of mobile phones is not directly stated. Companies generally categorize mobile phones under office equipment or computing devices and provide a useful life of 3 to 5 years, based on internal policy.
Depreciation can be determined using –
- Straight Line Method (SLM)
- Written Down Value Method (WDV)
Each organisation might decide on the method and useful life based on its internal asset policy. The charged depreciation should be disclosed in the accounts’ notes.
Points to Keep in Mind
- Only business-use mobiles qualify for depreciation.
- Maintain suitable invoices and proof of usage, particularly at the time of audits.
- Different depreciation can be claimed in the Income Tax Return (ITR) under the “Profit and Loss” schedule for professionals or businesses.
- In the case of employees, depreciation on personal property such as mobiles cannot be claimed.
- Though the mobile is purchased through EMI or loan, depreciation is still on the full cost, not the EMI.
What if Mobile is Reimbursed or Gifted?
If the mobile phone is given to an employee or bought as part of a corporate scheme (e.g., from telecom providers), the asset must remain capitalized at fair market value and depreciation claimed as such.
In situations where the phone is reimbursed or viewed as a perquisite, the company may also claim depreciation, but the treatment needs to be uniform and disclosed in the books appropriately.
Conclusion
Mobile phones are not simply individual devices anymore they are business-critical assets in the digital workplace today. Identifying their depreciation assists companies in reflecting the real cost of doing business and streamlining tax charges.
Though the default depreciation rate for mobile phones is 15% under the Income Tax Act, it’s necessary to categorize them properly, apportion usage correctly, and keep records. With proper planning and compliance, even mundane devices like smartphones can help improve financial reporting and wiser tax management.
Related Services
References
The Income Tax Act, 1961
