You’ve probably heard the phrase, “Your car loses value the minute it leaves the showroom.” As unfortunate as it sounds, it’s true.

But here’s the real question—is your car an asset? Technically, yes. But it’s a depreciating asset. Unlike land or gold, which usually gain value over time, a car starts losing value the moment it is driven out of the showroom. This drop in value over time is known as depreciation, and the speed at which it drops is the depreciation rate.

In this blog, we break down what car depreciation means, how it's calculated, and how you can minimize its impact.

Why does a car depreciate?

Several factors influence the depreciation of a car:

Aging and wear & tear

As cars age, they undergo physical wear and tear. Components like the engine, tyres, brakes, and interiors start to degrade, reducing the car’s value.

Initial depreciation

A brand-new car becomes “used” the moment it’s registered and driven out, causing an immediate drop in value.

Technology advancements

New models come with better features and improved fuel efficiency. Older models become outdated and less desirable.

Market demand

SUVs and EVs are in high demand right now. Older models or less fuel-efficient cars tend to depreciate faster due to shifting consumer preferences.

Odometer reading

More kilometers mean more wear and tear. A lower odometer reading typically helps retain value.

Number of owners

Cars with fewer previous owners usually retain value better, as multiple owners may signal maintenance issues.

Brand reputation

Well-known, reliable brands tend to depreciate slower because they remain in demand in the used car market.

Economic & regulatory factors

Regulations like new emission norms or rising fuel prices can impact resale value—especially for diesel vehicles.

Exit of auto brand

If a carmaker exits the Indian market (like Chevrolet, Ford, etc.), the value of their cars tends to drop due to challenges in maintenance and parts availability.

IRDAI’s car depreciation rates

The Insurance Regulatory and Development Authority of India (IRDAI) has defined fixed depreciation rates that are used to calculate the Insured Declared Value (IDV) of a car:

• 1st Year: 15% depreciation
• 2nd Year: 20%
• 3rd Year: 30%
• 4th Year: 40%
• 5th Year: 50%

These rates determine how much your car is worth in insurance terms. A lower IDV means a lower claim amount in case of theft or total damage.

Tip: Get a zero depreciation add-on in your car insurance to avoid losing out during claims.

Car depreciation under Income Tax Act

If you use your car for business purposes, you can claim depreciation under the Income Tax Act:

• Rate: 15% (for non-hire cars)
• Method: Written Down Value (WDV) method
• Condition: Can only be claimed for business use, not personal use

Example:

• Year 1: ₹10,00,000 - 15% = ₹8,50,000
• Year 2: ₹8,50,000 - 15% = ₹7,22,500
• Year 3: ₹7,22,500 - 15% = ₹6,14,125
• Bonus for EV Owners: EVs used for business purposes are eligible for 40% depreciation.

How to calculate your car’s current value

Based on IRDAI slabs:

If your car’s original ex-showroom price was ₹10 lakh and it is 3 years old:

• Depreciation: 30% of ₹10 lakh = ₹3 lakh
• Current Value = ₹10 lakh - ₹3 lakh = ₹7 lakh

Based on income tax WDV:

• Year 1: ₹10,00,000 - ₹1,50,000 = ₹8,50,000
• Year 2: ₹8,50,000 - ₹1,27,500 = ₹7,22,500
• Year 3: ₹7,22,500 - ₹1,08,375 = ₹6,14,125

How to minimize car depreciation

You can’t stop depreciation, but you can slow it down. Here’s how:

• Choose the right car: Stick to popular models with good resale value.
• Maintain regularly: Follow your service schedule, fix damages quickly.
• Protect the car: Use seat covers, avoid parking in the sun, protect the paint.
• Get zero depreciation insurance: Covers full cost of part replacement without factoring depreciation.

Car depreciation is inevitable, but understanding how it works helps you make better buying, selling, and insurance decisions. Whether you're a buyer looking for long-term value or a seller planning resale, knowing depreciation rates and how to reduce their impact can save you money.