Depreciation is the calculation of any asset's decline in value. This is because as time passes, usage, expiration and technological development lower the value of an asset till it's unusable. When we calculate the expected life cycle of any asset of a company, we need to charge depreciation at a reasonable rate of realisable value for each financial year.
Depreciation is seen as an expenditure. As the value of every asset declines over time, depreciation is taken into consideration as a business expense. Nowadays, mobile phones are important assets of a company.
Keep reading to find out how mobile phone depreciation works.
Mobile phone depreciation rate
Mobile phones, especially smartphones, are vital for any business. Most businesses depend on company mobile phones for communication after work. Mobile phones are considered to be fixed assets as they usually last for more than a year. Like any other long-term asset, the value of phones depreciates under the provisions of the Income Tax Act, 1961 and Companies Act, 2013.
Any property that generates value over time falls in the category of a capital asset. As it is brought into the company’s name and adds value to its business, it is considered an asset. Other than that, the economic benefits that mobile phones bring to the company continue as long as they remain operational.
Mobile phone depreciation rate as per the Income Tax Act
Any company, business, or similar entity may choose the rate of mobile phone depreciation as per the provisions of the Income Tax Act, 1961. For taxation purposes, the depreciation rate is 15% of the WDV (Written Down Value) of a mobile phone.
As mobile phones are considered to be ‘plant and machinery’, rates applicable for mobile phone depreciation are the same as for plant and machinery owned by businesses. Even non-corporates can adjust depreciation in their account books according to the rates specified in Income Tax Act.
As the rates of depreciation keep on changing, you need to constantly keep a check on the Income Tax website. Here are the steps to follow to check the depreciation rates on the official income tax website:
1: Visit the official website of Income Tax India – Charts and Tables.
2: A search bar will be present on the page where you need to type ‘depreciation rates’ and click on ‘search’.
3: You can now view the depreciation rates of mobile phones and other assets.
Mobile phone depreciation rate as per the Companies Act
A company needs to record depreciation on mobile phones in their books according to the rates specified by the Companies Act, 2013. Therefore, if a company purchases a mobile phone on or after 1st April 2014, it needs to be capitalised under the Companies Act.
If a mobile phone is purchased before or on 31st March 2014 and costs more than Rs. 5000, it also needs to be capitalised.
Depreciation rates applicable on mobile phones as per the Companies Act of 2013 are as follows:
- Written Down Value = 13.91%
- Straight Line Method = 4.75%
Straight Line Method (SLM) depreciation includes a simple method of calculation where an equal amount is chargeable every year. Meanwhile, the Written Down Value (WDV) method also known as diminishing value method is calculated on a fixed rate chargeable on the net carrying value of an asset. In this method, the depreciation value calculated in the initial years is higher than in later years.
In case an undertaking is engaged in power generation or its distribution, it gets the option to claim depreciation on either SLM or WDV method.
Mobile phone depreciation rate calculator
The formula for calculating Straight-Line Method rate of depreciation is:
Depreciation = [(Original cost - residual value)/useful life]*100
For the Written Down Value method, the formula is:
Depreciation = (Original cost - salvage value)*depreciation rate
Here is an example of calculating depreciation as per the Companies Act, 2013 for two years:
ABC Company Private Ltd. offers mobile phones to its staff for official use only. The company had purchased two mobile phones for Rs. 20,000 which brings the total to Rs. 40,000 for the financial year 2023-24.
The depreciation calculation is as follows:
- Using Straight Line Method-
| Year | Opening Value | Depreciation (4.75% of Original Cost) | Accumulated Depreciation | Book Value |
| 2023-2024 | 40,000 | 1,900 | 1,900 | 38,100 |
| 2024-2025 | 40,000 | 1,900 | 3,800 | 36,200 |
- Using Written Down Value Method-
| Year | Opening Value | Depreciation (13.91% of the Original Cost) | Accumulated Depreciation | Book Value |
| 2023-24 | 40,000 | 5,564 | 5,564 | 34,436 |
| 2024-25 | 40,000 | 4790 | 10,354 | 29,646 |
As you can see when calculating the depreciation of mobile phones using WDV technique, we calculate it on the asset’s diminishing value.
However, as you can see that the calculation is quite complex and may take a lot of time. It’s a better option to use a calculator that is easily available on many websites. With the help of such a calculator, you can find the depreciation value within a few seconds.
You simply need to enter the cost of an asset, salvage/ residual value in percentage, method of depreciation, and life of an asset. You will be able to view the depreciation timeline for the entire life of an asset which will include its opening value, depreciation, and closing value.
Final word
The Companies Act, 2013 and Income Tax Act,1961 significantly influence Indian businesses. You need to keep all of its given rules and regulations in mind as this will affect your company’s profits and loss accounts. Make sure to record a depreciation rate as per Schedule II of the Companies Act.
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