A S BANKA ADVISORS

Two depreciation regimes now sit on either side of one date. The Income-tax Act 2025 has been in force since 1 April 2026, yet the tax audit your finance team is closing this season, the one due 30 September 2026, belongs to FY 2025-26 and runs entirely on the old law. Most cutover mistakes we are seeing come from teams applying the new Act a year too early, or citing the wrong section number in Form 3CD. Here is how to keep the two years clean.

The one-line rule

Depreciation follows the year, not the filing date. FY 2025-26 is computed under Section 32 of the Income-tax Act 1961. FY 2026-27 onwards is computed under Section 33 of the Income-tax Act 2025. The bridge between them is Section 536 of the new Act, the saving clause that preserves the old computation for periods that ended before the cutover.

FY 2025-26: nothing actually changes

For the year ended 31 March 2026, your depreciation claim, your block-of-assets pooling, the written down value method and the half-year rule for assets used under 180 days all stay exactly where they were under Section 32 of the 1961 Act. The fact that the 2025 Act is now live does not pull this year forward. Form 3CD for this audit should cite the 1961 Act sections, full stop. Switching the citation to the new Act for a pre-cutover year is a needless audit-trail error.

From Tax Year 2026-27: depreciation is Section 33, not Section 34

This is the trap worth circling in red. Under the Income-tax Act 2025, depreciation is re-enacted as Section 33, “Deduction for depreciation”. Section 34 of the new Act is the general-conditions-for-deductions provision, not depreciation. Several transition summaries in circulation have mislabelled the new depreciation section as 34. It is 33. When your team starts drafting next year’s working papers, lock the period-correct section into every template now, before the wrong number propagates across schedules.

The mechanics carry over with very little disturbance: the WDV method, block pooling and the rate schedule are substantially unchanged from the old framework.

Your closing WDV becomes next year’s opening block, untouched

The closing written down value of each block as on 31 March 2026 becomes the opening WDV of that block for Tax Year 2026-27 under Section 33, with no revaluation, no reset and no adjustment. There is no transition entry to book. The practical task is purely documentary: freeze your block-wise WDV at 31 March 2026 and keep the schedule that proves the carry-over figure, so the opening block under the new Act reconciles to the closing block under the old one.

Unabsorbed depreciation keeps its character

Unabsorbed depreciation carried under Section 32(2) of the 1961 Act merges automatically into the Section 33(11) capital allowance pool of the new Act. Under Section 536(2), it keeps its character and its favourable set-off treatment, and the carry-forward clock keeps running without a break. You do not lose the indefinite carry-forward by crossing the cutover. The only thing that can go wrong here is poor documentation, so keep the unabsorbed pool clearly scheduled and traceable into the new pool.

Before you sign the FY 2025-26 audit

• Compute FY 2025-26 depreciation on Section 32 of the 1961 Act and cite the 1961 Act in Form 3CD.
• Freeze block-wise WDV at 31 March 2026 and keep the schedule that maps each closing block to next year’s opening block.
• Schedule the unabsorbed depreciation pool so its merger into the Section 33(11) pool is fully traceable.
• Set up Tax Year 2026-27 working-paper templates citing Section 33, not Section 34, before the wrong number spreads.

None of this is hard, but it is the kind of detail where a quiet error in a template multiplies across every schedule and only surfaces at assessment. If your team is freezing WDV and mapping opening blocks right now, that is exactly the moment a second set of eyes pays for itself.

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CA Adityavikram Banka, Founder, A S Banka Advisors Private Limited.