The depreciation rate for vehicles plays a crucial role in the financial implications of car ownership. As a critical aspect of the Income Tax Act of 1961, depreciation reflects the decline in a car's value due to wear and tear. This influences various financial considerations regarding maintaining a vehicle.
Depreciation Rate for Vehicles
- Car Depreciation under Income Tax Law
We can find depreciation being detailed in Section 32 of the Income Tax Act. It illustrates the decrease in a car's value from its acquisition to its eventual sale.
- Depreciation Rates for Different Car Parts
While plastic, rubber, and fiberglass parts lose substantial value quickly (50% and 30% depreciation, respectively), metal parts are more resilient, staying untouched for the first six months. Afterward, their depreciation starts creeping up, clocking in at 5% in the first year, 10% in the second, and 15% in the third. Paint jobs and glass components follow distinct paths. Paintwork depreciates by 50% alongside the rubbery buddies, while glass remains impervious to depreciation, meaning comprehensive car insurance covers its total replacement cost.
- Tax Benefits and Depreciation
We can claim car loan tax benefits by presenting the car as a depreciating asset. Claiming 15% depreciation annually to curtail tax liability.
- Calculating Depreciation Rate
Variables influencing the depreciation rate for a car include structure, age, mileage, condition, and local market conditions. Utilising online calculators or scrutinising similar used cars' prices for estimates, you can get a rough idea of your vehicle’s depreciation rate.