Section 41 · Computation of total income
Section 41 of the Income-tax Act, 2025 — Written Down Value (WDV) of Depreciable Asset
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter IV
📜 What the law says — Section 41, Income-tax Act 2025
41. (1) For the purposes of computation of income under the head “Profits and
gains of business or profession”, written down value means—
(a) in case the asset is acquired in the tax year, the actual cost to the assessee;
(b) in case the asset is acquired before the tax year, actual cost to the
assessee less depreciation actually allowed under this Act or under the
Income-tax Act, 1961 (43 of 1961);
(c) in case of block of assets, the written down value computed in the
following manner:
[(A – D) + B – C] – E, where
A = the written down value of the block of assets in the immediately
preceding tax year;
B = actual cost of any asset falling within that block, acquired during
the tax year;
C = moneys payable together with scrap value, if any, in respect
of any asset falling within the block, which is sold, transferred,
demolished, destroyed or discarded during the tax year, where “C”
shall not exceed (A – D) + B;
D = depreciation actually allowed in respect of block of assets in
relation to the said immediately preceding tax year;
E = in the case of a slump sale, the actual cost of the asset falling
within that block as reduced by—
(i) depreciation actually allowed in respect of tax year commenc-
ing on 1st April, 1986 or any earlier tax year; and
(ii) depreciation allowable for tax year commencing on or after
1st April, 1987 under this Act or under the Income-tax Act,
1961 (43 of 1961), as if such asset was the only asset in the
relevant block of asset.
(2) Where any block of asset is transferred by—
(a) a holding company to its subsidiary company and the conditions of
section 70(1)(c) are satisfied;
(b) a subsidiary company to its holding company and the conditions of
section 70(1)(d) are satisfied; or
(c) amalgamating company to the amalgamated company being an Indian
company,
then the actual cost of the block of assets, irrespective of anything contained in
section 39, in the hands of transferee company or amalgamated company, as the
case may be, shall be the same as written down value of the block of assets as in the
case of the transferor company or the amalgamating company in the immediately
preceding tax year as reduced by depreciation actually allowed in respect of that
block
In plain language
What Section 41 actually deals with
Section 41 of the Income-tax Act, 2025 (effective from 1 April 2026) lays down how to compute the "written down value" (WDV) of a depreciable asset. WDV is simply the tax-book value of an asset after subtracting the depreciation already claimed on it. This WDV is the base on which depreciation under Section 33 is calculated every year, so Section 41 is the engine room of the entire depreciation system.
This provision is the successor to Section 43(6) of the old Income-tax Act, 1961. The good news for businesses: the method has not changed. The Written Down Value method and the "block of assets" concept continue exactly as before. The closing WDV as on 31 March 2026 under the 1961 Act simply becomes the opening WDV on 1 April 2026 under the 2025 Act — no recomputation, no reset.
Who it applies to
- Every person carrying on a business or profession who owns depreciable assets — proprietors, partnership firms, LLPs, companies, professionals.
- Anyone claiming depreciation under Section 33 on tangible assets (buildings, plant, machinery, furniture) and intangible assets (patents, copyrights, licences, know-how, goodwill of a business/profession where allowed).
- Persons receiving assets through amalgamation, demerger, succession, gift or slump sale, where a special carry-over WDV applies.
The two ways WDV is worked out
- Asset acquired during the current tax year: WDV = actual cost to the assessee. No depreciation is reduced in the year of purchase itself.
- Asset acquired in an earlier year: WDV = actual cost less all depreciation actually allowed under the 2025 Act or earlier under the 1961 Act.
- Block of assets (the normal case): depreciation is not tracked asset-by-asset but on a "block" (a group of assets of the same class carrying the same depreciation rate). The block WDV is computed using the formula below.
The block-of-assets formula: [(A − D) + B − C] − E
- A = WDV of the block at the beginning of the year (opening WDV).
- D = depreciation actually allowed on that block in the preceding year (used to arrive at the correct opening figure).
- B = actual cost of assets acquired and added to the block during the year.
- C = "moneys payable" plus scrap value of assets sold, discarded, demolished or destroyed during the year — capped at (A − D) + B, so the block can never go negative on this account.
- E = a special reduction that applies in a slump sale (the actual cost of assets transferred as part of an undertaking, net of depreciation from AY 1988-89 onwards).
The result is the closing WDV, on which the current year's depreciation under Section 33 is charged.
Special situations Section 41 covers
- Carried-forward depreciation: unabsorbed depreciation carried forward under Section 33(11) is treated as depreciation "actually allowed", keeping the WDV continuous across years.
- Years when no return was required: if in earlier years the assessee was not liable to be assessed, the depreciation that would have been allowable is still notionally reduced.
- Mixed agricultural + business income: depreciation is computed as if the entire income were business income, and that full amount is deemed to have been allowed — so you cannot inflate WDV by claiming a smaller deduction.
- Amalgamation / demerger / holding-subsidiary transfers / succession: the transferee (new company or successor) takes the asset at the same WDV the transferor would have had. This blocks artificial "step-up" of asset values to claim extra depreciation.
How it interacts with other sections
- Section 33 grants depreciation; Section 41 supplies the WDV base it acts on.
- Section 2 defines "block of assets", "actual cost", "depreciable asset" and "written down value".
- Section 74 (capital gains on depreciable assets, old Section 50) uses WDV to compute short-term capital gain when a block ceases to exist or turns negative.
Practical implications
Because tax law and your accounting books use different depreciation rates and methods, the WDV in your income-tax computation will almost always differ from the book value in your balance sheet. Maintain a separate tax depreciation (block-wise) register. When you sell an asset, remember you usually do not book a profit/loss asset-by-asset — the sale value simply reduces the block. A gain arises only when the whole block empties out or the money received exceeds the block value.
💡 Example
Example 1 — Simple block movement. Sunrise Manufacturing Pvt. Ltd. has a plant & machinery block (15% rate). Opening WDV on 1 April 2026 is ₹70,00,000 (this already reflects last year's depreciation, so A − D = ₹70,00,000). During the year it buys new machinery for ₹20,00,000 (B) and sells an old machine for ₹5,00,000 (C). There is no slump sale, so E = 0. Closing WDV before depreciation = (70,00,000 + 20,00,000 − 5,00,000) = ₹85,00,000. Depreciation under Section 33 at 15% = ₹12,75,000. The closing WDV carried to next year = ₹85,00,000 − ₹12,75,000 = ₹72,25,000.
Example 2 — Block turns negative (short-term capital gain). Same block WDV of ₹85,00,000 during the year, but the company sells machinery for ₹90,00,000 instead. Because C (₹90,00,000) exceeds (A − D) + B (₹85,00,000), the block value is reduced to zero and the excess ₹5,00,000 is taxed as short-term capital gain under Section 74 (old Section 50). No depreciation is allowed on that block for the year since nothing is left in it.
Relatable story: Ramesh, a Jaipur-based CA, tells his client Priya, who runs a printing press, "Don't ask me the profit or loss on your old printer you just sold for ₹5 lakh — under the block system we simply subtract that ₹5 lakh from your machinery block. You'll only pay capital-gains tax if that sale wipes the whole block out or brings in more money than the block is worth. Otherwise your WDV just gets smaller and you keep claiming depreciation on the balance." Priya finally understood why her balance-sheet asset value never matched her tax return.
| Element in formula [(A−D)+B−C]−E | What it means | Practical note |
|---|
| A | Opening WDV of the block (start of year) | = closing WDV of previous year |
| D | Depreciation actually allowed in preceding year | Used to reconcile the correct opening figure |
| B | Actual cost of assets added during the year | Includes purchase price + installation, etc. |
| C | Money receivable + scrap value on assets sold/discarded | Capped at (A−D)+B; block cannot go below zero here |
| E | Slump-sale adjustment | Applies only where an undertaking is sold as a going concern |
| Result = Closing WDV, on which Section 33 depreciation is charged |
Related sections
Section 33 — Depreciation allowance on business assets Section 2 — Definitions of block of assets, actual cost & WDV Section 74 — Capital gains on depreciable assets (old Section 50) Section 38 — Deductions for business income and meaning of 'sold' Section 313 — Succession of business and carry-over of WDV Section 43(6) of the 1961 Act — Old WDV provision (equivalent)
Frequently asked questions
What is the written down value (WDV) in simple words?
WDV is the tax value of an asset after subtracting the depreciation you have already claimed. It is the base on which the next year's depreciation is calculated under Section 33.
Is Section 41 of the 2025 Act the same as Section 43(6) of the 1961 Act?
Yes. Section 41 of the Income-tax Act, 2025 is the successor to Section 43(6) of the 1961 Act. The block-of-assets method and WDV computation continue unchanged.
Will my closing WDV as on 31 March 2026 change under the new Act?
No. The closing WDV on 31 March 2026 under the 1961 Act becomes your opening WDV on 1 April 2026 under the 2025 Act, with no recomputation required.
Do I calculate profit or loss on each asset when I sell it?
No. Under the block system the sale proceeds are simply deducted from the block. A taxable short-term capital gain arises only if the block value becomes negative or the whole block ceases to exist.
Why is my tax WDV different from the asset value in my balance sheet?
Because the Income-tax Act uses its own depreciation rates and the WDV block method, while your books may use Companies Act rates or straight-line depreciation. The two figures will normally differ.
What happens to WDV in an amalgamation or demerger?
The transferee company takes the assets at the same WDV the transferor would have had. This prevents artificially stepping up asset values to claim higher depreciation.
Does Section 41 itself allow depreciation?
No. Section 41 only fixes the WDV. The actual depreciation deduction is granted by Section 33, which applies the prescribed rate to the WDV computed under Section 41.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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