Low-value assets: setting a capitalisation threshold after Schedule XIV

The rule that is no longer there

Many finance teams still talk about "the ₹5,000 rule". It came from Schedule XIV to the Companies Act, 1956, which provided that assets whose actual cost did not exceed ₹5,000 would be depreciated at 100%. Schedule II to the Companies Act, 2013, which replaced Schedule XIV from 1 April 2014, has no equivalent provision.

That does not mean every stapler must be capitalised and depreciated over its useful life. It means that the basis for writing off small items has changed: it is now a matter of materiality and accounting policy, not a statutory rate. This article covers how to set that policy, why the answer differs between the books, Income-tax and GST, and how to keep physical control of items that never enter the fixed asset register.

What the accounting standards say

Ind AS 16 does not prescribe a unit of measure for recognition. Paragraph 9 says that judgement is required in applying the recognition criteria to an entity's specific circumstances, and that it may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and apply the criteria to the aggregate value. Revised AS 10, which applies to companies not on Ind AS, takes the same approach.

Two consequences follow:

• A company may choose to expense items below a threshold, because the effect of capitalising them would not be material to the financial statements.
• Equally, a company with a large number of small but identical items, such as a school buying hundreds of desks or a hotel fitting out rooms with furniture, may be required to capitalise them in aggregate, because together they are material even though each is cheap.

The threshold is therefore a policy choice that must be justified by materiality, applied consistently and disclosed as part of your significant accounting policies. Agree it with your auditor before you adopt or change it.

Choosing a threshold

There is no prescribed figure. When finance teams set a threshold, they usually weigh:

• Size of the company. A threshold that is immaterial for a large manufacturer may be material for a small professional services firm.
• Volume and nature of purchases. If you buy a thousand monitors a year just below the threshold, the aggregate effect on profit and on the balance sheet may be material.
• Control needs. Items that are portable and attractive, such as phones, tablets and laptops, are often tracked whatever their cost, because the risk is loss rather than misstatement.
• Consistency across group companies. Subsidiaries that consolidate into one set of accounts should apply a consistent policy.

A threshold should apply to the cost of a single item, not to an invoice. Splitting a purchase across invoices to bring each below the threshold is exactly the behaviour an auditor will look for.

Income-tax: no small-asset write-off

The Income-tax Act does not currently allow a 100% write-off for small assets. Every depreciable asset that is capital in nature goes into its block and is depreciated at the block rate, with the half rate if it is put to use for less than 180 days in the year. See the block of assets guide for the mechanics.

The question that matters for tax is whether the expenditure is capital or revenue in nature. That is decided by the nature of the item and the facts, not by the accounting entry. An item expensed in the books under a materiality policy may still be capital for tax purposes, in which case it is added back in the computation and added to the block. The Income Computation and Disclosure Standards, including ICDS V on tangible fixed assets, also apply to the tax computation. Because the treatment depends on facts, and because the Income-tax Act, 2025 now applies from tax year 2026-27 with new section numbers, settle your approach with your tax adviser and apply it consistently. You can test a block with the Income-tax depreciation calculator.

GST: the definition of capital goods follows your books

Under section 2(19) of the CGST Act, "capital goods" means goods whose value is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. So the accounting decision does carry through to GST:

• An item capitalised in the books is a capital good for GST.
• An item expensed under your low-value policy is not a capital good. It is treated as an input.

Under GST, credit on both inputs and capital goods is generally available in full when the conditions of section 16 are met, so the difference is smaller than it was under the old CENVAT rules. It still matters in a few places: the reversal rules on removal of capital goods under section 18(6), the apportionment under Rule 43 where capital goods are used for both taxable and exempt supplies, and the blocked credits in section 17(5). The GST on capital goods guide covers each of these.

Expensed is not the same as uncontrolled

A low-value policy settles the accounting. It does not settle the operational question of who has the items and whether they are still there. Two points are worth keeping in mind.

First, CARO 2020 clause 3(i) is about property, plant and equipment, so items that are not capitalised fall outside its records and physical verification requirements. But items that are capitalised in aggregate, such as pooled furniture, are within its scope, and the register must carry quantities so that a count can be compared with the books. The CARO 2020 guide explains what the auditor reports.

Second, many items below a typical threshold are exactly the ones that go missing: phones, tablets, power tools, projectors, test instruments. A sensible approach is to keep a separate control list for attractive items, with a tag and a custodian, even though they carry no value in the books. IT teams usually need this anyway for warranty, licensing and data-security reasons.

Writing the policy

A workable low-value policy usually covers:

1. The threshold, per item, including taxes and directly attributable costs that would otherwise be capitalised
2. The categories it applies to, and any categories excluded (for example, IT devices that are always capitalised or always tracked)
3. The aggregation rule for bulk purchases of similar items
4. The treatment of items that are part of a larger asset: a spare part bought to commission a machine is part of the machine's cost, whatever its own value
5. Which items are tracked for control even though expensed, and who owns that list
6. How the policy is reviewed, and who approves a change

When the policy changes, remember that a change in accounting policy has its own accounting and disclosure requirements under Ind AS 8 or AS 5. Changing the threshold is not a mere estimate change, so discuss it with your auditor before the year in which you change it.

How FixedAsset Pro handles low-value items

FixedAsset Pro keeps depreciation policies per book, and a low-value write-off is one of the per-book policy settings, so the Companies Act book can follow your materiality policy while the Income-tax book continues to work on blocks. Items can be recorded with a quantity and unit for pooled purchases, and tags and custodians can be assigned to any record in the register. The policy figure itself is yours to decide with your auditor; the application does not choose it.

This article is general information as at October 2026, not accounting, tax or legal advice. The threshold, the capital or revenue question for tax and the GST treatment depend on your facts; check with your auditor and tax adviser.