How Freelancers Can Claim Depreciation on Equipment or Laptops
- Farheen Mukadam
- Jul 29
- 10 min read
Freelancers in India often face challenges when it comes to managing their finances, and one of the most important aspects of tax planning for them is understanding depreciation. As freelancers, they may use equipment, technology, and office space to perform their work. Depreciation can help reduce the taxable income of freelancers by allowing them to claim the loss of value on assets like computers, laptops, or other professional equipment over time. This can lead to significant tax savings, and understanding how to claim depreciation is essential for effective tax planning.
Table of Contents
What Is Depreciation and Why Does It Matter for Freelancers?
Depreciation is the reduction in the value of an asset over time, due to wear and tear, age, or obsolescence. For freelancers, depreciation applies to business-related assets such as laptops, computers, furniture, software, and other equipment they use to run their operations. Instead of claiming the entire cost of an asset as an expense in one year, depreciation allows freelancers to spread out the expense over multiple years, reflecting the asset’s useful life.
This is important for freelancers because it helps lower their taxable income. Since depreciation is treated as a deductible expense, it can significantly reduce the overall income on which taxes are calculated. By properly accounting for depreciation, freelancers can lower their tax burden while ensuring that they claim the full value of their business investments over time.
How Can Freelancers Claim Depreciation on Equipment or Laptops?
Freelancers often use a variety of assets, including laptops, computers, office furniture, and other equipment to run their businesses. Under the Income Tax Act, freelancers can claim depreciation on these business assets, which can significantly reduce their taxable income. Depreciation refers to the reduction in the value of an asset over time due to usage, wear and tear, or obsolescence. By claiming depreciation, freelancers can lower their overall tax liability and improve cash flow. Below is a detailed guide on how freelancers can claim depreciation on their business equipment, such as laptops, and the process involved.
1. Identify the Asset
The first step in claiming depreciation is identifying which assets qualify. According to the Income Tax Act, assets used exclusively for business purposes are eligible for depreciation. For freelancers, this typically includes:
Laptops and Computers: Essential for conducting freelance work, such as programming, design, writing, and other tasks.
Office Furniture: Desks, chairs, filing cabinets, and other furniture used in your home office.
Other Equipment: This could include items like cameras, printers, software, and other tools essential for your business.
Assets that are used partially for personal use and partially for business use can also be eligible for depreciation, but only the portion used for business purposes can be claimed. For instance, if you use your laptop 80% for work and 20% for personal use, only 80% of the depreciation can be claimed as a business expense.
2. Calculate the Depreciation
For freelancers, depreciation is generally calculated using the Written Down Value (WDV) method, which takes into account the cost of the asset minus any accumulated depreciation from previous years. The WDV method is the most commonly used for claiming depreciation for business assets.
Depreciation Rates for Different Assets:
Computers and Laptops: Laptops and computers typically have a high depreciation rate due to their rapid technological obsolescence. Under the Income Tax Act, the depreciation rate for computers and laptops is usually 40% per annum. This means that if you purchase a laptop for ₹50,000, you can claim a depreciation of ₹20,000 (40% of ₹50,000) in the first year.
Office Furniture: Office furniture such as desks, chairs, and shelves is depreciated at a much slower rate. The standard depreciation rate for office furniture is 10% per annum. For example, if you buy a desk for ₹10,000, you can claim ₹1,000 as depreciation in the first year.
Other Equipment: The depreciation rate for other equipment varies depending on the asset type. For example:
Photocopiers, printers, and similar equipment: These assets may be depreciated at 15% per annum.
Software: Depreciation on software licenses can also be claimed, but it is generally at a rate of 40% per annum, similar to that of computers and laptops.
The depreciation calculation is done on the Written Down Value (WDV) of the asset, which means the asset’s original cost minus any depreciation claimed in previous years. If a laptop is bought for ₹50,000 and depreciation of ₹20,000 is claimed in the first year, the WDV at the beginning of the second year would be ₹30,000. Depreciation will then be calculated on this reduced value in the subsequent years.
3. Claim Depreciation in the Income Tax Return (ITR)
Once you have calculated the depreciation, the next step is to claim it in your ITR. Freelancers report their business expenses, including depreciation, in the Income from Business or Profession section of their tax return. Here's how to go about it:
Form 16/16A: These are tax certificates provided by your clients and employers, but for freelancers, this may not always apply. Instead, you need to ensure that your business income is properly reported under Income from Profession.
Depreciation Schedule: In your ITR, under Section 32 of the Income Tax Act, you will need to enter details of your business assets, the depreciation claimed, and the written down value for each asset. The depreciation will reduce your taxable income, leading to a lower overall tax liability.
4. Depreciation for Assets Used Over Multiple Years
If the asset has been in use for multiple years, depreciation is claimed on the Written Down Value (WDV). This means that if you have already claimed depreciation for a laptop or any other asset in previous years, you need to calculate depreciation on its reduced value after accounting for the depreciation claimed in previous years.
For example, if you purchased a laptop for ₹50,000, claimed ₹20,000 depreciation in the first year, and then continue using the laptop in the second year, the WDV at the start of the second year will be ₹30,000 (₹50,000 - ₹20,000). In the second year, the depreciation will be calculated at the applicable rate (40% in this case) of ₹30,000, amounting to ₹12,000. This depreciation will be claimed in the second year of use.
5. Additional Points to Consider
Depreciation on New Assets: For new assets purchased in a financial year, you can claim depreciation for the entire year, even if the asset was purchased late in the financial year. However, if the asset is purchased after September 30, only half of the depreciation rate may be applicable for that year.
Business and Personal Use: As mentioned, only the portion of an asset used for business purposes can be claimed for depreciation. If the asset is used 80% for business and 20% for personal use, only 80% of the depreciation can be claimed.
Section 80E and 80G Benefits: Besides depreciation, freelancers can also explore other deductions like Section 80E for education loans or Section 80G for charitable donations, which further reduce taxable income.
Tax Updates — FY 2025-26
In FY 2025-26, several tax updates could impact freelancers, particularly regarding depreciation claims. The Income Tax Department has proposed changes to tax laws and introduced updated forms to streamline the filing process, making it easier for freelancers to claim business-related expenses. These changes include:
Revised Depreciation Rates: The government has updated depreciation rates for several categories of assets, including technology-related equipment. These updates aim to encourage businesses, including freelancers, to invest in technology by allowing faster depreciation claims.
New ITR Forms: The updated Income Tax Return forms for FY 2025-26 offer a more detailed and organized format to help freelancers accurately report their business expenses, including depreciation. These forms are more user-friendly and provide clear sections for reporting different types of expenses and assets.
Increased Focus on TDS Compliance: With the growing trend of digital platforms for freelancers, the government has introduced stricter TDS (Tax Deducted at Source) reporting requirements. Freelancers earning income through platforms like Upwork or Fiverr will need to keep a closer eye on TDS deductions to ensure they claim appropriate credit.
These updates provide new opportunities for freelancers to claim deductions more efficiently while ensuring compliance with the latest tax regulations.
Conclusion
Understanding depreciation is crucial for freelancers, as it can help reduce taxable income and result in lower tax liabilities. Freelancers can claim depreciation on various business assets, including equipment and technology used for their work. By staying informed about tax updates and using depreciation strategically, freelancers can optimize their tax returns and ensure they are maximizing allowable deductions. As tax laws evolve, it’s important for freelancers to keep track of updates to take full advantage of available benefits. For a smoother filing process, freelancers can leverage platforms likeTaxBuddy mobile app to ensure that their depreciation claims are accurate and compliant with the latest tax regulations.
FAQs
Q1: Can I claim depreciation on my personal laptop if I use it for freelancing work?
Yes, if you use your personal laptop exclusively for freelancing, you can claim depreciation on it as a business asset. The laptop should be primarily used for work-related activities, such as running freelance projects or other business-related tasks. It's important to ensure that the laptop is directly linked to your business operations, as personal use would not qualify for depreciation claims. To claim depreciation, maintain proper documentation of its purchase, the date of purchase, and your usage pattern to establish its role in your business.
Q2: How do I calculate depreciation for equipment I’ve been using for a few years?
Depreciation is calculated on the Written Down Value (WDV) of the asset, which is the cost of the asset minus the depreciation claimed in previous years. For example, if you purchased equipment for ₹50,000 and have already claimed ₹20,000 depreciation over two years, the WDV is ₹30,000. You can then apply the depreciation rate (as prescribed under the Income Tax Act for the specific asset) to calculate the annual depreciation for the current year based on the WDV.
Q3: Is there a limit to how much depreciation I can claim?
No, there is no specific limit on depreciation for eligible assets, but the amount you can depreciate each year depends on the asset category. For instance, laptops and computers generally fall under the “computers and peripherals” category and can be depreciated at 40% per year. However, if the asset is sold or disposed of before the end of its useful life, the total depreciation claimed cannot exceed its cost.
Q4: Can I claim depreciation on software or other intangible assets?
Yes, under the Income Tax Act, software and other intangible assets like patents, trademarks, and copyrights, when used for business purposes, are eligible for depreciation. These assets are typically depreciated under the "Intangible Assets" category, with a depreciation rate of 25%. It's important to keep in mind that intangible assets need to be directly related to your business activities to claim depreciation.
Q5: Do I need to keep records of my assets for depreciation claims?
Yes, you must maintain detailed records of all business assets to support your depreciation claims. This includes purchase invoices, proof of ownership, and evidence that the assets are being used for business purposes. During an audit or review by the tax authorities, you will need to provide this documentation to substantiate your depreciation claims and ensure that you're in compliance with tax laws.
Q6: Can depreciation be claimed under both the new and old tax regimes?
Yes, depreciation can be claimed under both the old and new tax regimes. However, under the new tax regime, taxpayers forgo most deductions and exemptions, including depreciation, in exchange for lower tax rates. Therefore, while you can claim depreciation under the old tax regime, the new regime limits your ability to utilize such deductions. For freelancers or small businesses, the choice of regime should be made after considering the overall tax savings and the available deductions.
Q7: How often can I claim depreciation?
Depreciation can be claimed annually, as long as the asset is in use for business purposes. Each year, you claim depreciation based on the Written Down Value (WDV) of the asset. Depreciation is calculated every year until the asset’s value reaches zero or until it is sold, disposed of, or no longer in use for business purposes.
Q8: What happens if I sell an asset before the end of its depreciation period?
If you sell an asset before it has fully depreciated, you need to calculate the difference between the sale price and the written-down value (WDV) of the asset. The WDV is the asset’s cost minus the depreciation claimed so far. If the sale price exceeds the WDV, you will make a capital gain, which is taxable. If the sale price is lower than the WDV, you will incur a capital loss. Both the gain or loss will be reflected in your income tax return.
Q9: Can I claim depreciation on second-hand equipment for my freelancing business?
Yes, you can claim depreciation on second-hand equipment, as long as it is used for business activities. The depreciation rates for second-hand equipment are the same as those for new equipment, provided the asset is purchased and used for business purposes. When claiming depreciation on second-hand equipment, it’s essential to keep records of the purchase price, the asset’s condition, and its usage in your business to support your claim.
Q10: How does depreciation affect my overall tax liability?
Depreciation reduces your taxable income by lowering the value of assets in your business. By claiming depreciation, you reduce the amount of profit subject to tax, thus lowering your overall tax liability. For freelancers, this can significantly reduce the taxable income, allowing you to save on taxes. The more assets you have and the higher their depreciation rates, the greater the tax reduction you can achieve.
Q11: Is there any specific documentation I need to submit for depreciation claims?
Yes, for depreciation claims, you need to submit supporting documents such as invoices, proof of purchase, and a usage log for the asset. These documents will be required to substantiate your depreciation claim. Additionally, keeping a record of the asset’s age and usage helps ensure that the depreciation calculation is accurate. Maintaining proper documentation is crucial to avoid disputes with the tax authorities and ensure that your claims are valid.
Q12: Can I claim depreciation on rented office space or equipment?
Yes, you can claim depreciation on rented equipment, such as computers, machinery, or furniture, if it is used for business purposes. However, rental expenses for office space are treated as business expenses, not depreciation. Depreciation applies only to assets that you own and use for business. For rented assets, you can only claim depreciation on the equipment you lease, not on the space you rent. Proper records and agreements for the rented assets are essential for making a valid claim.
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