Business & Corporate · Third Schedule · Tax Year 2026-2027
Tax Depreciation Calculator
Reducing balance on written down value, plus the first-year initial allowance where the asset qualifies — and the carve-outs that disqualify it are the part most people miss.
The schedule
Year by year on written down value
| Year | Opening WDV | Initial allowance | Depreciation | Deduction claimed | Closing WDV |
|---|
The initial allowance is a timing benefit, not extra relief: a bigger first-year deduction leaves a smaller written down value and smaller deductions in every year after it.
Reading the result
Tax depreciation is not your accounting depreciation
Your accounts may write an asset off over its useful life on a straight line. Tax uses prescribed rates on the written down value, and the two diverge from the first year. Businesses that use the accounting figure in the tax computation are filing a number the Ordinance does not recognise.
The gap is a timing difference rather than a permanent one — the same total is relieved eventually — but in any given year it changes the tax.
The initial allowance is front-loaded relief
Where an asset qualifies, a first-year allowance gives a large deduction up front and reduces the base for normal depreciation afterwards. It is worth knowing which assets qualify before committing to capital expenditure, because the cash-flow effect in year one can be substantial.
The vehicle cost cap catches people out
Depreciation on a passenger vehicle is limited by a cost ceiling, so the amount above it never gets relieved at all. Buying a more expensive car does not produce a proportionately larger deduction, and the part above the cap is a permanent cost rather than a deferred one.
Where this stops
This computes the allowance on figures you enter. Disposal is the other half of the exercise: selling an asset for more or less than its written down value produces a balancing charge or allowance, which this does not model.
FAQs
Tax depreciation FAQs
Is tax depreciation the same as accounting depreciation?
No, and treating them as the same is a reliable way to get an assessment wrong. Your accounts may use straight line over a useful life you chose; tax depreciation is reducing balance at prescribed rates, with its own first-year allowance. The difference between the two is added back or deducted in the tax computation every year.
What is the initial allowance?
An extra deduction in the year an eligible asset is first used in the business, on top of normal depreciation. It is a timing advantage rather than free money — a larger deduction now means a smaller written down value and smaller deductions later — but for a profitable business the cash-flow value is real. Since the Finance Act 2020 the Third Schedule sets the 25% rate for plant and machinery only — buildings, furniture, road vehicles not plying for hire and previously used plant get none.
Which assets do not get the initial allowance?
The carve-outs matter more than the rate. Road transport vehicles not plying for hire, furniture including fittings, plant or machinery previously used in Pakistan, and plant or machinery whose entire cost has been allowed as a deduction in another way are outside it. A company car for a director is the classic case people get wrong.
What rate applies to my asset?
The Third Schedule sets them by class — buildings at one rate, plant and machinery and furniture at another, computer hardware and allied items at a higher one. The selector fills a commonly applied figure and the field stays editable, because rates and classes have been amended and some sectors have their own.
Why is there a cost cap on vehicles?
Depreciation on a passenger vehicle not plying for hire has long been restricted to a capped cost, so an expensive car does not generate an unlimited deduction. The cap has been revised over the years, so it is an optional input here rather than a fixed number — leave it blank if none applies to your asset.
What happens in the year I buy or sell?
Depreciation is generally allowed in full in the year an asset is first used, and not at all in the year of disposal; instead, disposal produces a gain or loss measured against the written down value. This calculator models the holding period, not the disposal — work the disposal out separately.
Can depreciation create a loss?
It can, and unabsorbed depreciation is treated more generously than an ordinary business loss: it can be carried forward without the time limit that applies to business losses. That is worth knowing before you decide to disclaim an allowance.
Does part-business use change anything?
Yes. Where an asset is used only partly for business, the deduction is restricted to the business proportion, and the written down value still runs on the full cost. The business-use field applies that restriction to the deduction while keeping the schedule intact.
Related tools
Working out the business tax itself?
Take the depreciation into your business income computation.
Open Business Income Tax Calculator