What is Accelerated Depreciation?

Accelerated Depreciation is an accounting method that allows a company to write off a larger portion of a tangible asset's cost in the early years of its useful life and smaller amounts in later years. This contrasts with straight-line depreciation, where the cost is spread evenly over the asset's life.

For Startups: For a capital-intensive startup (e.g., in manufacturing or hardware), using accelerated depreciation can be a tax planning strategy. By front-loading depreciation expenses, the startup can reduce its taxable income in the initial years, thereby preserving cash when it is most needed. However, this also means lower depreciation expenses and higher taxable income in later years.

Example: A startup buys machinery for ₹10 Lakhs. Using an accelerated method, it might claim ₹4 Lakhs in depreciation in Year 1, as opposed to ₹1 Lakh under a 10-year straight-line method. This significantly lowers its Year 1 taxable profit.