Schedule 2 Tax Depreciation in Nepal: Block A–E WDV, Timing Rule & 7% Repairs
Accounting depreciation recorded in financial statements differs fundamentally from statutory tax depreciation permitted under Section 16 of the Income Tax Act 2058. Schedule 2 establishes a pooling system with fixed percentage write-offs calculated on declining Written Down Value (WDV) bases.
- Assets are grouped into five distinct pools: Block A (5%), Block B (25%), Block C (20%), Block D (15%), and Block E (Straight-line over contractual life).
- Additions during the fiscal year follow the 3-tier timing rule: Shrawan to Poush (3/3 basis), Magh to Chaitra (2/3 basis), and Baisakh to Ashadh (1/3 basis).
- Repairs and maintenance expenses are deductible up to 7% of the depreciation base for each block.
- Excess repairs exceeding 7% cannot be expensed immediately and must be capitalized into the closing pool base.
Depreciation Blocks and Statutory Rates
Nepal tax law categorizes business physical assets into defined pools:
| Block | Eligible Assets | WDV Depreciation Rate |
|---|---|---|
| Block A | Buildings, permanent physical structures, sheds | 5% |
| Block B | Computers, office fixtures, office furniture | 25% |
| Block C | Automobiles, motor vehicles, construction equipment | 20% |
| Block D | Industrial machinery, manufacturing plant, heavy equipment | 15% |
| Block E | Intangible assets, software, licenses, patents | Cost / Useful Life |
The 7% Repair and Improvement Limit
Section 16 Subsection 2 limits deductible repair costs to 7% of the opening depreciation base of each respective block. For example, if a company maintains an opening machinery base of NPR 2,000,000 in Block D, maximum allowable repair deduction for that year is NPR 1,40,000. Any remaining repair expenditure gets added to the asset pool base for future depreciation.
Final Thoughts
Correct asset pooling prevents disallowances during tax assessments. Use our Schedule 2 Tax Depreciation Calculator to generate compliant depreciation schedules and repair limits.
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