Depreciation

Personal Finance

Depreciation is the reduction in value of an asset over time due to wear, usage, or obsolescence. Vehicles lose 15-20% value per year. Understanding depreciation reveals the true cost of owning a car or other depreciating assets.

In detail

For vehicles: a car bought at Rs 10 lakh loses Rs 1.5-2L in year 1. After 5 years its market value is typically Rs 4-5L. This invisible cost makes EMI-financed cars more expensive than they appear -- you pay both EMI interest and depreciation.nnFor businesses: WDV (Written Down Value) method is standard in India. Depreciation is deductible from business income, reducing tax liability.

Formula

WDV Method: Depreciation = Book value x Rate% Year 1: Rs 10L x 15% = Rs 1.5L, WDV = Rs 8.5L Year 2: Rs 8.5L x 15% = Rs 1.27L, WDV = Rs 7.22L

Real-life example

🇮🇳 India example

Priya buys a car at Rs 8 lakh. Year 1 depreciation Rs 1.6L + insurance Rs 40K + EMI interest Rs 90K = Rs 2.9L hidden annual cost beyond principal repayment.

Frequently asked questions

Does property depreciate in India? ▼

Land never depreciates. Building structure depreciates over its useful life (30-60 years). For rented property the building can be claimed against rental income for tax purposes.