How Depreciation Affects Your Commercial Vehicle’s Value

If you own a commercial vehicle, understanding how depreciation affects its value over time is crucial. Whether you operate a fleet of trucks or just one auto-rickshaw, depreciation impacts your resale value, tax deductions, and insurance claims. Let’s dive into what depreciation on commercial vehicle really means and how it affects your bottom line.

What is Depreciation on Commercial Vehicle?

Depreciation on commercial vehicle refers to the reduction in its value over time due to wear and tear, usage, and age. It’s an accounting measure that reflects how much your vehicle’s worth drops each year. In insurance terms, depreciation plays a key role in determining the Insured Declared Value (IDV) which is nothing but Sum Insured and, consequently, the premium and claim payout.

Importance of Vehicle Depreciation for Businesses

Depreciation affects your:

Insurance premiums and claim amounts
Financial accounting (as a deductible expense under the Income Tax Act)
Resale or trade-in value

When renewing or buying commercial vehicle insurance, your IDV is adjusted based on standard depreciation rates set by the IRDAI. This directly impacts the premium you pay and the amount you’ll receive in case of total loss or theft.

Factors Affecting Depreciation on Commercial Vehicles

Your vehicle’s depreciation is influenced by:

Age of the vehicle
Type and make
Usage intensity (more kilometres covered equals faster depreciation)
Maintenance history
Previous accidents or claims

In the context of insurance, Royal Sundaram considers these while calculating your IDV and applying depreciation for claims.

Commercial Truck Depreciation Explained

Commercial trucks, given their heavy-duty nature, tend to depreciate faster than private vehicles. The value decline is sharper due to:

Continuous usage for logistics
Greater exposure to road conditions
Higher repair and servicing costs

For instance, if your truck is over five years old, its IDV might drop significantly unless you’ve opted for an add-on like zero depreciation cover offered under Royal Sundaram’s commercial vehicle insurance.

Commercial Truck Depreciation Rate as per Indian Norms

The standard depreciation rates as per IRDAI (and used by insurers like Royal Sundaram) are:

Up to 6 months: 5%
6 months to 1 year: 15%
1–2 years: 20%
2–3 years: 30%
3–4 years: 40%
4–5 years: 50%

How to Calculate Depreciation for Commercial Vehicles

To estimate your depreciation:

Depreciated Value = Original Purchase Price – (Depreciation Rate × Purchase Price)

Example:

If your commercial truck was purchased at ₹10,00,000 and is now 3 years old:

Depreciation = 40%

Depreciated value = ₹10,00,000 – ₹4,00,000 = ₹6,00,000 (this becomes your IDV)

Tax Implications of Vehicle Depreciation

Good news—you can claim depreciation as an expense under Section 32 of the Income Tax Act. For commercial vehicles:

Depreciation rate for income tax purposes is 30% (Written Down Value method)
This helps reduce your taxable income, boosting overall savings

However, if you’ve claimed input GST credit on the vehicle, depreciation has to be calculated on the net cost (excluding GST).

Tips to Manage and Reduce Depreciation

Here’s how you can minimize the hit:

Opt for zero-depreciation add-ons
Regular servicing and maintenance
Avoid modifications that reduce resale value
Drive responsibly to avoid accident-related devaluation
Keep your documents and service records up to date

Conclusion

Depreciation on commercial vehicle isn’t just a number—it’s a powerful financial lever. It influences how much you pay for insurance, how much you can claim, and what you save on taxes. With solutions like Royal Sundaram’s commercial vehicle insurance and add-on covers such as Depreciation Waiver Cover (zero depreciation), you can offset some of the impact and keep your business financially healthy.

Choose wisely, stay insured, and make every kilometre count, because when it comes to protecting your vehicle and your finances, knowledge truly is horsepower.