In simple words, depreciation tax shield is the proper management of asset for saving the tax. In this proper management, we give special care for the deduction of depreciation. This is not cash amount but we get deduction from our taxable income. This will become our major source of cash inflow which we saved by not giving tax on depreciation amount. Suppose, company's depreciation is Rs. 100000 and tax rate is 30%, then Rs. 30000 will be depreciation tax shield. In the optimistic scenario of NPV, depreciation tax shield is used for calculating net cash flow.