Depreciation Both Ways: Schedule II vs. Section 32, Computed, Not Copy-Pasted
Every material asset on a client's books needs two separate depreciation figures that rarely match — one under Schedule II of the Companies Act 2013 for the financial statements, driven by useful life and residual value, and one under Section 32 of the Income Tax Act for the tax audit, driven by prescribed block-of-assets rates. They're computed on entirely different logic, they create the deferred tax difference between book and tax profit, and until recently, building both by hand, asset by asset, was simply what "doing depreciation" meant during an audit.
Why this is two separate problems, not one
Schedule II depreciation is useful-life based: the Companies Act prescribes indicative useful lives for asset classes — buildings 30-60 years, plant and machinery 8-25 years, furniture 10 years, and so on — and the entity applies SLM or WDV consistent with that life, subject to a 5% residual value floor. Section 32 depreciation runs on entirely different mechanics: assets pool into prescribed blocks by rate, WDV method only, no individual asset tracking, with a put-to-use-date rule that determines whether an asset gets a full year's rate or half in the year it's acquired. An auditor working through this manually has to hold both frameworks in mind simultaneously for every material addition, disposal, and existing asset, and reconcile the resulting difference into the deferred tax computation under AS 22 or Ind AS 12.
What computing both actually looks like
On CORAA, the Fixed Assets working paper reads the Fixed Asset Register as the primary source and composes the block-wise schedule per Schedule II directly — Gross Block, Additions, Disposals, Depreciation Charge, Depreciation Reversed on Disposal, and Net Block, by asset class. Schedule II useful-life verification runs against the auditee's declared depreciation method, checking the applied rate against the prescribed life for that asset class and flagging variance where it doesn't line up. Section 32 depreciation for the tax audit composes alongside, with put-to-use-date logic auto-applied — so the half-year rule for an asset acquired late in the year is handled structurally, not manually tracked in a side note.
The same computation feeds two separate downstream outputs that need to agree: the Schedule III financial statements carry the Schedule II figures directly into the working paper's own depreciation tab (one of eight tabs alongside Balance Sheet, P&L, Cash Flow, and Ratios, all cross-referencing the same mapped ledger), while Form 3CD's Clause 18 — one of the data-heavy clauses computed reproducibly from the ledger rather than left as a judgement call — carries the Section 32 figures into the tax audit report.
Where auditor judgement still applies
Disposals at a loss are flagged as impairment-review triggers under AS 28 — the system surfaces them as something worth testing, it doesn't run the impairment test itself, that stays a genuine auditor procedure. And a variance between the declared depreciation method and Schedule II's prescribed useful life is flagged for the auditor's characterization, not silently corrected — a company genuinely can deviate from the indicative useful life with proper disclosure under Schedule II Part A para 3, so a flagged variance is a prompt to check the disclosure, not an automatic error.
Why getting both bases right, consistently, actually matters
The gap between Schedule II book depreciation and Section 32 tax depreciation isn't a rounding difference to wave off — it's the deferred tax asset or liability the financial statements have to carry, and a manual process that's inconsistent between the two bases (a rate applied correctly in one but not the other) produces a deferred tax figure that's wrong in a way that's hard to catch downstream, since nothing about a wrong-but-internally-consistent deferred tax number looks obviously broken on its face.
Frequently Asked Questions
Does CORAA compute Schedule II depreciation, Section 32 depreciation, or both?
Both, from the same Fixed Asset Register — Schedule II block-wise schedule (Gross Block, Additions, Disposals, Depreciation Charge, Net Block) for the financial statements, and Section 32 block-of-assets WDV with put-to-use-date logic for the tax audit's Form 3CD Clause 18.
Does the system flag a company using a depreciation rate that doesn't match Schedule II's prescribed useful life?
Yes — it checks the declared method against the prescribed useful life for that asset class and flags variance, but doesn't auto-correct it, since a deviation can be legitimate with proper disclosure under Schedule II Part A para 3.
Does the tool run the AS 28 impairment test for asset disposals at a loss?
No — a disposal at a loss is flagged as an impairment-review trigger for the auditor to test; the impairment test itself remains a genuine auditor procedure, not something automated.
Why does it matter if book and tax depreciation are computed inconsistently?
The difference between the two bases is exactly what drives the deferred tax asset or liability under AS 22/Ind AS 12 — an inconsistency between them produces a deferred tax figure that's wrong without looking obviously broken.
Related: Working Papers module · Depreciation Comparator · Start a free trial