{"id":399623,"date":"2026-10-24T09:00:58","date_gmt":"2026-10-24T03:30:58","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=399623"},"modified":"2026-10-23T18:04:24","modified_gmt":"2026-10-23T12:34:24","slug":"ai-tools-depreciation-income-tax-act-2025","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2026\/10\/24\/ai-tools-depreciation-income-tax-act-2025\/","title":{"rendered":"Are AI Tools Eligible for Depreciation under the Income-tax Act, 2025?"},"content":{"rendered":"
\n

This article examines whether AI tools qualify for depreciation under Section 33 of the Income-tax Act, 2025, as intangible business or commercial rights.<\/p>\n

Introduction<\/p>\n

Any business, that owns assets which have a limited useful life, will be eligible to claim depreciation on such assets as provided under Section 33<\/a>, Income-tax Act, 2025<\/a> (IT Act<\/a>). Indian jurisprudence has considerably deliberated as to what may constitute as a depreciable asset, categorising intellectual property rights as such assets as well. The idea is that even intellectual property rights lose their value over time, and therefore they should be eligible for depreciation to ensure that businesses are not subject to unjust tax laws.<\/p>\n

With the advent of artificial intelligence (AI), it becomes imperative that businesses understand as to how their AI tools will be categorised under the IT Act<\/a> and whether they will be eligible for depreciation. This is especially important when AI tools are considered to improve with investment and efforts by the respective businesses. This paper seeks to answer whether such AI tools will be eligible for depreciation under the IT Act<\/a>. In the spirit of the facts mentioned above, Part II of this paper1<\/sup><\/a> shall explain the depreciation of intangible assets under the IT Act<\/a>. Part III delves deep into explaining whether AI tools fall under the permissible category of depreciable assets and finally Part IV offers concluding remarks.<\/p>\n

Depreciation of intangible assets under the IT Act<\/p>\n

AI tools are software applications and programs that use machine learning, algorithms, and data to perform complex tasks. The tools help automate work, analyse data, and mimic human thinking like problem-solving and decision-making. The types of these tools vary, such as natural language processors, computer visions or machine learning platforms. They are used as virtual assistants, in the field of robotics or automation. They remain an undefined entity in the rapidly evolving AI world, but can be easily categorised as tools that capable of understanding input and make decisions accordingly, improving through feedback. For the purposes of this paper, an AI tool refers to a software-based system capable of performing tasks that ordinarily require human intelligence and which is deployed by businesses to generate commercial value through automation.<\/p>\n

As per Section 33(1)(b<\/span>)<\/a>, IT Act<\/span><\/a>, depreciation is allowed on know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights. The idea behind providing such depreciation on these intangible assets is that even these assets lose value with time due to competition from other businesses, technological advancement, expire and lose economic utility over time. AI tools, in this aspect are similarly placed, as seen from the growth in AI market, with rapid technological advancement. Businesses are themselves investing in their own AI tools to ensure that their tool becomes better and more efficient for utilisation and market purposes.<\/p>\n

Due to this shift, it is critical to understand whether AI tools will be eligible for depreciation. As of now, the IT Act<\/a> raises a question on the categorisation of AI tools: would AI tools be even eligible for depreciation under the permissible categories of assets eligible for depreciation under Section 33<\/a>, IT Act<\/a>?<\/p>\n

In the next section, the author seeks to provide answer to this query.<\/p>\n

Do AI tools fall under the permissible category of depreciable assets?<\/p>\n

Section 33(1)<\/a>, IT Act<\/a> makes the following intangible assets eligible for depreciation: know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature<\/span>, being intangible assets acquired on or after 1 April 1998, owned wholly or partly by the assessee.<\/p>\n

The Supreme Court, in Techno Shares & Stocks Ltd.<\/span> v. CIT<\/span><\/a>2<\/sup><\/a>, had the opportunity to interpret and expand the scope of the intellectual property rights enumerated in Section 33(1)(b<\/span>)<\/a>. In the aforementioned case, the assessee had claimed depreciation on the Bombay Stock Exchange (BSE) membership card, stating that the membership card constitutes as a licence or business or commercial right of similar nature. However, the assessing officer had rejected this contention, and accordingly raised a demand against the value of depreciation of the membership card. The Supreme Court had ruled in favour of the assessee, stating that the BSE membership card was a business or commercial right which gave a non-defaulting continuing member a right to access the exchange and to participate therein. The court did not examine if the BSE membership card resembled a licence physically, it examined the commercial function performed by the right. This functional approach indicates that Section 33<\/a> should not be limited to its application on the basis of legal labels, but also with respect to the economic role performed by the intangible asset. The Supreme Court further remarked that the meaning of business or commercial right cannot be restricted to licence or franchise and must be given a wider ambit. In CIT<\/span> v. Smifs Securities Ltd.<\/span> (Smifs Securities<\/span>)<\/a>3<\/sup><\/a>, the Supreme Court also interpreted the words “any other business or commercial rights” and came to the conclusion that goodwill shall be included in the purview of any other business or commercial rights, while determining if goodwill shall be considered as a depreciable asset or not. The Delhi High Court, in Areva T & D India Ltd.<\/span> v. CIT<\/span> (Areva T & D<\/span>)<\/span><\/a>4<\/sup><\/a>, elaborated on what “any other business or commercial rights of similar nature” would mean. The court observed that the meaning of business or commercial rights would have to be understood in the backdrop of Section 32(1)(ii<\/span>)<\/span><\/a>, Income-tax Act, 1961<\/span><\/a>. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, as is understood, is a wider term which encompasses many facets in its fold. Therefore, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep meaning of intangible asset. The Delhi High Court also applied the principle of ejusdem generis and stated that the rights of the asset must be of a similar nature to know-how, patents, trade marks, licences or franchises. The court interpreted that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also in respect of other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate.<\/p>\n

The case of Areva T & D<\/span><\/a> was not the first instance wherein the principle of ejusdem generis was applied to interpret the meaning of the words “any other business or commercial rights”. The Supreme Court had relied on the same principle in the case of Smifs Securities<\/span><\/a> as well. The principle, which is a legal term, is a legal rule used by courts to interpret laws and contracts when a list of specific items is followed by a general word or phrase. Under the rule of ejusdem generis, the general word only includes things that are similar to the specific items listed. Therefore, the courts agree that “any other business or commercial right” will have to be aligned with the intent of Section 33(1)(b<\/span>)<\/span><\/a>. Although the enumerated assets differ considerably in their nature, they confer upon the holder an identifiable commercial advantage capable of being exploited in the course of business. A licence permits business operations; a franchise enables commercial expansion; patents protect technological innovation; and know-how facilitates industrial production. Therefore, all the rights enumerated in Section 33(1)(b<\/span>)<\/span><\/a> are not only intellectual property rights but also commercially valuable rights employed in carrying on a business. Separately, it may be noted that the AI tool itself may not be categorised into any of the other categories provided in Section 33(1)(b<\/span>)<\/span><\/a>. Know-how, as per Section 33(12)<\/span><\/a>, IT Act<\/span><\/a>, means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits. A bare reading of the definition of know-how makes it clear that AI tools cannot be considered under the ambit of know-how in any industry. A patent on the other hand, is defined as an exclusive legal right granted by the government for an invention, giving the owner the right to stop others from making, using, or selling it for a limited time. An invention has been defined as a new product or process that solves a technical problem in a unique way. An AI tool itself cannot be equated with a patent. While certain inventions embodied within an AI system may be patentable, the AI tool as a commercially exploitable product is conceptually distinct from the patent protecting those inventions. AI tools generate text based on existing, known public data rather than creating a true non-obvious, inventive step, making raw AI text insufficient for unique legal protection claims. Under the Copyright Act, 1957<\/span><\/a>, copyright subsists in certain categories of works, such as literary works (which include computer programs), artistic works, musical works, cinematograph films and sound recordings. While the underlying code of the AI tool may be covered under the ambit of copyright, AI tool itself cannot be stated to have come under the purview of copyright protection. A trade mark, on the other hand, is a word, phrase, symbol or design that identifies and distinguishes the source of goods or services of one party from those of others. In this case, the name of the AI tool could be considered under the purview of trade mark, but not the AI tool itself. Lastly, franchise is a complete business system where one uses a brand’s name, products and daily operating rules, while a licence only gives the permission to use specific intellectual property like a logo or patent. The foregoing discussion demonstrates that an AI tool cannot be equated with any one of the specific categories enumerated in Section 33(1)(b<\/span>)<\/span><\/a>. Nevertheless, the legislature deliberately employed the residuary phrase “any other business or commercial rights of similar nature”, thereby recognising that technological and commercial developments may produce valuable intangible assets that do not fit neatly within traditional intellectual property classifications. An AI tool represents one such development. Its commercial value lies not in the individual intellectual property rights associated with it, but in its ability to enable a business to perform its commercial functions more effectively. Consequently, a purposive interpretation of Section 33(1)(b<\/span>)<\/span><\/a>, consistent with Areva T & D<\/span><\/a>, supports the inclusion of AI tools within the expression “business or commercial rights of similar nature”. However, rights over such AI tools can be stated to be rights that are obtained for effectively carrying on the business and commerce of an entity. This proves that the AI tools, at the very least can be termed to be envisaged as eligible for depreciation.<\/p>\n

One possible objection is that AI tools are a bundle of intellectual property rights, as the underlying code may be protected by copyright, the name will be protected by trade mark and their utility will also be categorised as a know-how within the industry. However, this argument overlooks the distinction between the intellectual property rights themselves and the commercial value generated by the AI tool as an integrated business asset. Section 33<\/span><\/a> is concerned with depreciable business rights rather than the existence of intellectual property protection.<\/p>\n

Conclusion<\/p>\n

The existing statutory framework is sufficiently flexible to accommodate AI tools within Section 33(1)(b<\/span>)<\/span><\/a>. The challenge lies not in legislative omission but in adopting a purposive interpretation of the residuary expression “any other business or commercial rights of similar nature” in light of evolving technological realities.<\/p>\n<\/div>\n\n

*Currently practising, Gujarat High Court, graduated from NUJS Batch of 2024. Author can be reached at: adv.aanishaggarwal@gmail.com<\/a>.<\/span><\/strong><\/p>\n

1.<\/a> See<\/span><\/span>, “Depreciation of intangible assets under the IT Act”.<\/p>\n

2.<\/a> (2010) 9 SCC 410<\/span><\/a> : (2010) 327 ITR 323, para 19.<\/p>\n

3.<\/a> (2012) 13 SCC 488<\/span><\/a> : (2012) 348 ITR 302, para 9.<\/p>\n

4.<\/a> (2012) 345 ITR 421 : 2012 SCC OnLine Del 1963<\/span><\/a>, para 13.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Aanish Aggarwal*<\/p>\n","protected":false},"author":67011,"featured_media":399625,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42503,1191],"tags":[117948,117951,117945,117950,117947,117953,87817,91673,117949,117946,117952],"class_list":["post-399623","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal-analysis","category-op-ed","tag-ai-and-taxation-india","tag-ai-software-depreciation","tag-ai-tools-depreciation","tag-business-or-commercial-rights","tag-depreciation-of-ai-tools","tag-depreciation-of-intangible-assets","tag-income-tax-act-2025","tag-indian-tax-law","tag-intangible-assets-taxation","tag-section-33-income-tax-act","tag-tax-treatment-of-ai-tools"],"yoast_head":"\nAre AI Tools Eligible for Depreciation under the Income-tax Act, 2025? | SCC Times<\/title>\n<meta name=\"description\" content=\"An analysis of whether AI tools qualify for depreciation as intangible business or commercial rights under the Income-tax Act, 2025.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2026\/10\/24\/ai-tools-depreciation-income-tax-act-2025\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are AI Tools Eligible for Depreciation under the Income-tax Act, 2025?\" \/>\n<meta property=\"og:description\" content=\"An analysis of whether AI tools qualify for depreciation as intangible business or commercial rights under the Income-tax Act, 2025.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.scconline.com\/blog\/post\/2026\/10\/24\/ai-tools-depreciation-income-tax-act-2025\/\" \/>\n<meta property=\"og:site_name\" content=\"SCC Times\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/scc.online\/\" \/>\n<meta property=\"article:published_time\" content=\"2026-10-24T03:30:58+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2026\/10\/AI-tools-depreciation-under-Income-tax-Act-2025.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"886\" \/>\n\t<meta property=\"og:image:height\" content=\"590\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Editor\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Are AI Tools Eligible for Depreciation under the Income-tax Act, 2025?\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Editor\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2026\\\/10\\\/24\\\/ai-tools-depreciation-income-tax-act-2025\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2026\\\/10\\\/24\\\/ai-tools-depreciation-income-tax-act-2025\\\/\"},\"author\":{\"name\":\"Editor\",\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/#\\\/schema\\\/person\\\/84e42bab48238baf12c7e33b3d9761fe\"},\"headline\":\"Are AI Tools Eligible for Depreciation under the Income-tax Act, 2025?\",\"datePublished\":\"2026-10-24T03:30:58+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2026\\\/10\\\/24\\\/ai-tools-depreciation-income-tax-act-2025\\\/\"},\"wordCount\":1932,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2026\\\/10\\\/24\\\/ai-tools-depreciation-income-tax-act-2025\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/wp-content\\\/uploads\\\/2026\\\/10\\\/AI-tools-depreciation-under-Income-tax-Act-2025.webp\",\"keywords\":[\"AI and taxation India\",\"AI software depreciation\",\"AI tools depreciation\",\"business or commercial rights\",\"depreciation of AI tools\",\"depreciation of intangible assets\",\"Income-tax Act 2025\",\"Indian Tax Law\",\"intangible assets taxation\",\"Section 33 Income-tax Act\",\"tax treatment of AI tools\"],\"articleSection\":[\"Op Eds\",\"OP. 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