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What is the Depreciation Rate for Vehicles?

Learn about the depreciation of various car parts, tax benefits, and methods for calculating depreciation to manage financial implications effectively.

  • 21 Feb 2024
  • 2 min read
  • 345 views

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 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.

 

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Conclusion

Understanding the car depreciation rate is imperative for making informed financial decisions concerning car ownership. Whether integrating it into tax benefits, evaluating car insurance requirements, or contemplating resale value, a nuanced comprehension of how depreciation shapes a car's value over time is vital for maintaining financial equilibrium in vehicle ownership.

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