Accelerated depreciation is a method of depreciating an asset faster in the early years of its useful life — recognising a greater proportion of the total depreciation expense upfront rather than spreading it evenly across the asset's life as in straight-line depreciation. Common accelerated depreciation methods include the Written Down Value (WDV) method — which applies a fixed depreciation rate to the declining book value each year — and the double-declining balance method. The primary motivation for using accelerated depreciation is tax deferral: by claiming higher depreciation in early years, companies reduce their taxable income and tax liability in those years, preserving cash for reinvestment even though the total lifetime depreciation remains the same. In India, the Income Tax Act, 1961 specifies WDV depreciation rates for different asset classes for income tax purposes — these rates are typically higher than the straight-line rates specified under the Companies Act, creating a difference between tax depreciation and book depreciation that generates deferred tax liabilities on the balance sheet. For capital-intensive Indian companies in sectors like manufacturing, power generation, and infrastructure, the choice of depreciation method has a meaningful impact on reported profits, cash flows, and tax liabilities across accounting periods.
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