India Has No Section 179 — So Which Equipment Structure Actually Gives You the Fastest Write-Off?
Business Tax · Equipment Finance · India · FY 2026-27
India Has No Section 179 — So Which Equipment Structure Actually Gives You the Fastest Write-Off?
Equipment finance brochures circulating in India borrow their tax argument wholesale from American marketing material. The pitch is familiar: lease the machine, deduct the entire purchase price this year, and let the tax saving fund the down payment. It rests on Section 179 of the United States Internal Revenue Code, and Section 179 has no counterpart anywhere in Indian tax law.
What India does have is a written-down-value depreciation system, a 20% additional depreciation that most companies have quietly given up without noticing, a GST credit that behaves very differently under a lease than under a purchase, and a Supreme Court position on who owns a leased asset that is the opposite of the American one. Put those together and the fastest deduction often comes from the structure the brochure tells you to avoid.
Quick Summary
India allows no immediate full expensing. Plant and machinery is written down at 15% a year on the block, so a ₹1 crore machine yields only ₹15,00,000 of depreciation in year one and still has 44% of its cost unclaimed after five years. An operating lease, by contrast, is fully deductible as revenue expenditure as it is paid — typically ₹26,40,000 in year one on the same machine. Manufacturers outside the 22% concessional regime get an extra 20% additional depreciation that changes the answer entirely.
What replaces Section 179 in India, and why it is much slower
From 1 April 2026 the Income-tax Act, 2025 governs Indian income tax, and depreciation moves from Section 32 of the 1961 Act to Section 33 of the new Act, read with Rule 25 and Appendix I of the Income Tax Rules, 2026. The substance carries over unchanged: assets are pooled into blocks, and each block is written down at a prescribed percentage of its written-down value every year.
The prescribed rates are 15% for plant and machinery, 40% for computers and computer software, 25% for intangible assets, 10% for furniture and fittings, and 5% to 10% for buildings. There is no election, no dollar cap, and no mechanism anywhere in the Act that lets an ordinary business expense a machine in full in the year it is bought.
Market size estimates for Indian equipment rental diverge sharply between research houses because each defines scope differently, so treat any single figure with care. The direction, however, is agreed on all sides. Mordor Intelligence puts the India construction equipment rental market at about $14.31 billion in 2026, up from roughly $13.62 billion in 2025, and notes that rental penetration sits below one-tenth, well under global levels, as mid-sized contractors move from ownership to asset-light models.
The reason that shift matters for tax is arithmetic. A block written down at 15% never actually reaches zero, and the deduction shrinks every year.
The 180-day rule that halves your first year
An asset put to use for fewer than 180 days in the year of acquisition gets only half the prescribed rate. Because the Indian financial year runs from 1 April to 31 March, the practical cut-off falls in the first week of October, and treating the end of September as the deadline builds in a sensible margin.
Miss it and the year-one deduction on that ₹1 crore machine falls from ₹15,00,000 to ₹7,50,000. The lost half is not forfeited — it stays in the block and unwinds over subsequent years — but the cash flow benefit slips by a full year, which on a large capital programme is the difference between a comfortable advance tax instalment and an awkward one.
Additional depreciation, and the trap inside the 22% rate
Businesses engaged in manufacturing or production, and in power generation, get an extra 20% of actual cost as additional depreciation on new plant and machinery in the year it is put to use. It is not available on second-hand machinery, office appliances, road transport vehicles, or plant installed in office premises or a guest house. Where the 180-day test is failed, only half is allowed in year one and the balance in the following year.
Here is the part that catches capex-heavy companies. Section 115BAA offers domestic companies a flat 22% rate, which with a 10% surcharge and 4% cess works out to an effective 25.17%, with no Minimum Alternate Tax. In exchange, the company gives up additional depreciation entirely, along with SEZ relief under Section 10AA, most Chapter VI-A deductions, and any brought-forward loss or unabsorbed depreciation attributable to them. Depreciation on any block is also capped at 40%. The option is exercised on Form 10-IC and is irrevocable.
The irreversible decision most boards make on a single number
A company that opts into 115BAA for the headline rate saving and then embarks on a large manufacturing capex programme has permanently surrendered the 20% additional depreciation on every machine it will ever buy. The rate saving is real and recurring; so is the loss. Model both across five and ten years before filing Form 10-IC, because there is no route back.
Which structure gives the fastest deduction
Compare the same ₹1 crore machine across the routes actually available in India. The operating lease figure assumes a five-year lease at ₹2,20,000 a month, which is a realistic mid-market rate for a machine of that value.
Stretch it to five years and the ranking holds, though the cash cost differs. The operating lease deducts every rupee paid, but you pay ₹1.32 crore over the term and own nothing at the end. The purchase costs ₹1 crore and leaves you with an asset and a residual block that keeps generating deductions long after year five.
Who actually owns a leased asset for Indian tax
American guidance says the substance of the arrangement decides ownership, so a dollar-buyout lease makes the lessee the tax owner. Indian tax law has leaned the other way. In I.C.D.S. Ltd. v. CIT, decided by the Supreme Court in January 2013, a non-banking finance company that bought vehicles and leased them to customers was held to be the owner entitled to depreciation, even though the vehicles were registered in the customers’ names.
The position is not fully settled. Tribunal benches have distinguished finance leases where the lessee bears every risk and reward, and the CBDT’s own income computation standards approach the question differently. The practical consequence for a lessee is that you should never assume you will get depreciation on an asset you are leasing. Get the position in writing from the lessor and confirm it with your auditor before the first instalment.
| Structure | Who claims depreciation | What you deduct | Watch out for |
|---|---|---|---|
| Outright purchase | You | Depreciation on the block at the prescribed WDV rate | The 180-day rule; full GST outflow lands in one month |
| Loan-funded purchase | You | Depreciation, plus interest as a business expense | Interest up to the date the asset is put to use is capitalised |
| Hire purchase | You, as the deemed owner | Depreciation, plus the finance charge element | Confirm the agreement transfers title on the final instalment |
| Finance lease | Contested; commonly the lessor | Depreciation or the rental, never both | The I.C.D.S. position; get a written stance from both sides |
| Operating lease | The lessor | The entire lease rental as revenue expenditure | 2% TDS under Section 194-I once annual rent crosses ₹6,00,000 |
| Sale and leaseback | The buyer-lessor | The rental you now pay | Anti-avoidance rules restrict the buyer’s WDV to your old WDV |
| Short-term hire | The equipment owner | Hire charges as revenue expenditure | Whether TDS falls under Section 194-C or Section 194-I |
| Hire with operator | The equipment owner | The composite charge | Often treated as a contract under 194-C; split the invoice |
GST, and the credit that decides the real cost
Under GST, leasing is a supply of service where no title passes, and a supply of goods where the arrangement transfers ownership at a future date, as in hire purchase or conditional sale. The rate on leasing or renting goods generally follows the rate applicable to the goods themselves, with an 18% residual entry.
Input tax credit on equipment lease rentals is available, because such rentals are not in the blocked-credit list under Section 17(5) of the CGST Act. The important exception is motor vehicles, where credit is denied unless the vehicle is used for further supply, passenger transport or driver training.
The working capital point the brochures never make
Buy the ₹1 crore machine and you pay ₹18,00,000 of GST in a single month, recoverable as credit but only against output liability you actually have. Lease the same machine at ₹2,20,000 a month and the GST is ₹39,600 a month, roughly ₹4,75,200 a year, matched to your output flow. For exporters, businesses under an inverted duty structure, or anyone already sitting on accumulated credit, that front-loaded ₹18 lakh can stay locked up for months. That is a real cost, and it never appears in a lease-versus-buy comparison built from a depreciation table alone.
TDS on equipment rent: get the rate right
Section 194-I applies to rent for the use of machinery, plant or equipment. Budget 2025 raised the threshold from ₹2,40,000 a year to ₹6,00,000 a year per payee, so any article still quoting the lower figure is out of date.
Under ₹6L
Plant and machinery
Land, building, furniture
No valid PAN
Non-resident lessor
Get it wrong and the cost is not the tax. Interest runs at 1% a month for failure to deduct and 1.5% a month for deducting without depositing, a penalty equal to the tax may follow, and 30% of the rent expense itself can be disallowed. Where a single agreement bundles factory premises with the machinery inside them and does not split the values, the conservative position is to deduct at 10% on the whole amount, which is a strong argument for splitting the invoice at the drafting stage.
What the deduction is worth in rupees
A deduction reduces taxable profit; the cash value is the deduction multiplied by your effective rate. Indian rates diverge widely by entity type and regime, which is why the same machine is worth very different amounts to two buyers standing next to each other at the same trade fair.
| Deduction claimed | At 17.16% (115BAB) | At 25.17% (115BAA) | At 29.12% | At 34.94% |
|---|---|---|---|---|
| ₹10,00,000 | ₹1,71,600 | ₹2,51,700 | ₹2,91,200 | ₹3,49,400 |
| ₹25,00,000 | ₹4,29,000 | ₹6,29,250 | ₹7,28,000 | ₹8,73,500 |
| ₹50,00,000 | ₹8,58,000 | ₹12,58,500 | ₹14,56,000 | ₹17,47,000 |
| ₹1,00,00,000 | ₹17,16,000 | ₹25,17,000 | ₹29,12,000 | ₹34,94,000 |
| ₹2,00,00,000 | ₹34,32,000 | ₹50,34,000 | ₹58,24,000 | ₹69,88,000 |
Worked example: two identical CNC machines, two very different tax outcomes
A Pune auto-components manufacturer commissions a ₹1 crore CNC machine on 15 September 2026, comfortably past the 180-day test for FY 2026-27. Outside Section 115BAA, at an effective 29.12%, it claims ₹15,00,000 of normal depreciation plus ₹20,00,000 of additional depreciation. Total deduction ₹35,00,000, cash tax saved ₹10,19,200. A competitor down the road bought the identical machine on the same day but had opted into 115BAA two years earlier. It gets ₹15,00,000 only, at 25.17%, worth ₹3,77,550. The difference in year one is ₹6,41,650 on a single machine. Delay commissioning to 15 December and the first manufacturer’s deduction halves to ₹17,50,000, worth ₹5,09,600, with the balance drifting into the next year.
How long will you keep it? That is the real question
Put to use: the deadline that is not 31 March
Depreciation attaches to the year the asset is put to use, not the year it is ordered or paid for. On imported plant, customs clearance and commissioning routinely swallow the margin that looked comfortable at the purchase order stage.
What to have in the file
Frequently asked questions
Is there a Section 179 equivalent in India?
No. India has no provision allowing a business to expense the full cost of equipment in the year of purchase. Depreciation is claimed under Section 33 of the Income-tax Act, 2025 on the written-down value of a block of assets, at rates such as 15% for plant and machinery and 40% for computers. Any Indian sales material citing Section 179 is quoting United States law.
Can I claim depreciation on equipment I have taken on lease?
On an operating lease, no. The lessor owns the asset and claims depreciation, while you deduct the rental as revenue expenditure. On a finance lease the position is contested: the Supreme Court in I.C.D.S. Ltd. v. CIT allowed the lessor depreciation, while some tribunal rulings have favoured the lessee. Settle the position in writing with the lessor before the first instalment.
What is the depreciation rate on plant and machinery for FY 2026-27?
15% on the written-down value of the block, under Appendix I to the Income Tax Rules. Computers and computer software attract 40%, intangible assets 25%, furniture and fittings 10%, and buildings 5% to 10% depending on type. Companies that have opted into a concessional regime such as Section 115BAA face a 40% cap on any block.
How does the 180-day rule affect depreciation?
An asset put to use for fewer than 180 days in the year of acquisition gets only half the prescribed rate that year. Because the financial year begins on 1 April, the cut-off falls in the first week of October. On a ₹1 crore machine the difference is ₹15,00,000 against ₹7,50,000. The unclaimed half is not lost; it unwinds through the block in later years.
Who can claim the 20% additional depreciation?
Businesses engaged in manufacturing or production of any article, and in generation or distribution of power, on new plant and machinery. It is not available on second-hand machinery, road transport vehicles, office appliances, or plant installed in office premises or a guest house. Companies that have opted into Section 115BAA or 115BAB cannot claim it at all.
Does opting for the 22% rate under Section 115BAA cost me depreciation?
It costs you additional depreciation entirely, and caps depreciation on any block at 40%. Normal depreciation continues. You also give up SEZ relief, most Chapter VI-A deductions, and brought-forward losses attributable to them. The option is filed on Form 10-IC and cannot be withdrawn, so model a capex-heavy five to ten years before opting in.
Is GST on equipment lease rentals available as input tax credit?
Generally yes. Lease rentals on plant and equipment used for business are not blocked under Section 17(5) of the CGST Act, so the tax charged by the lessor is creditable against your output liability. Motor vehicles are the main exception, where credit is denied unless the vehicle is used for further supply, transport of passengers or goods, or driver training.
What TDS applies on equipment lease rent in India?
2% under Section 194-I for rent of plant, machinery or equipment, once annual payments to one payee exceed ₹6,00,000. Rent for land, buildings, furniture or fittings attracts 10%. If the lessor has not furnished a valid PAN, Section 206AA raises it to 20%. Payments to a non-resident lessor fall under Section 195 instead.
Is leasing or buying better for tax in India?
It depends on how long you will keep the asset and which tax regime you are in. An operating lease deducts faster but costs more in total and leaves you owning nothing. A purchase yields 15% a year, plus 20% additional depreciation if you manufacture and have not opted into 115BAA. Compare after-tax total cost over your actual holding period, not year-one deduction.
The short version
The American pitch does not travel. India has no immediate expensing, so a ₹1 crore machine gives ₹15,00,000 of depreciation in year one and still has ₹44,37,053 sitting in the block after five. Commission it after early October and even that halves. Manufacturers outside the 22% concessional regime get a further 20% of cost as additional depreciation, which is the single largest lever available and the one most quietly surrendered on Form 10-IC. An operating lease deducts faster but costs more overall and gives the depreciation to the lessor. Layer in an 18% GST outflow that lands in one month on a purchase and monthly on a lease, and 2% TDS above ₹6,00,000 a year, and the honest comparison is after-tax total cost over your real holding period.
