Car And Bike Depreciation Rate 2024: How To Calculate, Formula, Examples

by SMCIB on Monday, 18 March 2024

Car And Bike Depreciation Rate 2024: How To Calculate, Formula, Examples

The thrill of purchasing a car is unmatched, marking a significant milestone for many individuals and families alike. Owning your own vehicle not only provides a sense of freedom but also ensures convenient travel, free from the constraints of public transportation. It is needless to say, embarking on this journey of purchasing a car or bike marks a significant milestone in life.

However, it's vital to recognize that as time progresses, so does the ageing process of your vehicle, accompanied by a decline in its value. The moment you buy your vehicle and start that engine, it undergoes an immediate depreciation of approximately 5%, setting the stage for a gradual decline in value with each passing year. Understanding this inevitable vehicle depreciation is essential when thinking that you need to buy insurance or insurance claims for your cherished car or bike.

While depreciation is just one facet of the car-buying process, it intertwines with various other considerations, with purchasing car insurance being a prime example. Under the Motor Vehicles Act of 1988, acquiring a four-wheeler insurance policy is mandatory for all vehicle owners. This insurance coverage serves as a safeguard against the financial liabilities arising from accidents, theft, or damage to the car and its owner. Looking into the correlation between car depreciation rates and insurance is essential for navigating the complexities of car ownership and ensuring comprehensive protection for your prized possession.

When Do You Need To Look Into Depreciation?

When it comes to the ownership of cars and bikes, understanding the concept of car depreciation and bike depreciation can be the key to unlocking your future goals.

Scenario 1: You've just purchased your dream car or bike, basking in the excitement of hitting the open road. But wait, before you rev up the engine, there's a crucial factor to consider – vehicle depreciation. Once you drive off the lot, your shiny new ride begins its inevitable descent in value. Every mile you clock, every year that passes, chips away at its worth, shaping the trajectory of your ownership experience.

Scenario 2: Now, fast forward to the future. You've outgrown your current set of wheels and are eyeing an upgrade. Naturally, you want to maximize the return on your investment. This is where depreciation comes into play once again. Knowing the depreciation rate of your vehicle model can empower you to make savvy decisions, ensuring that you're not left short changed when it's time to trade up.

Scenario 3: But it's not just about buying new. For those in the market for a used car or bike, car depreciation as well as bike depreciation, holds equal importance. Sure, those attractively low prices might seem enticing, but beware – not all depreciations are created equal. Models that have seen the steepest declines in value often come with their own set of baggage – think reliability issues, hefty maintenance costs, and outdated features. Instead, aim for vehicles that have weathered the depreciation storm with grace, signaling reliability, longevity, and overall value retention.

In essence, investing in a vehicle that holds its value over time isn't just about securing a quality ride; it's about future-proofing your automobile. It's about the peace of mind that comes from knowing your investment is solid, your resale value is strong, and your journey is paved with smart choices. So, the next time you're in the driver's seat of a car or bike purchase, remember – depreciation isn't just a number; it's so much more. Now let’s look at this concept closely.

What Is Car Depreciation?

Car depreciation is the decline in the monetary value of a car over time, influenced by various factors such as its age, mileage, wear and tear, and prevailing market conditions. The moment a new car is driven off the dealership lot, it begins to depreciate. This natural phenomenon is an integral part of car ownership and is shaped by several key elements -


As a car ages, its value typically decreases. The most significant depreciation often occurs during the initial years of ownership, with new cars experiencing the sharpest decline in value.

  • Mileage
    The mileage accumulated by a car is a significant determinant of its value. Generally, higher mileage equates to greater wear and tear on the vehicle, resulting in a lower resale value.
  • Condition
    The overall condition of a car, encompassing its mechanical integrity, exterior appearance, and maintenance history, plays a pivotal role in determining the car depreciation rate. A well-maintained vehicle is likely to retain its value better than one with signs of neglect or damage.
  • Market Demand
    External market factors, such as the demand for a specific make or model, can influence vehicle depreciation rate. Cars which are highly sought after in the market may experience slower depreciation compared to those with lower demand.
  • Brand and Model
    The reputation, reliability, and popularity of a car brand and model significantly impact its depreciation trajectory. Certain brands and models are known for retaining their value better over time due to their perceived quality and desirability among consumers.

What Is Bike Depreciation?

Bike depreciation mirrors the concept observed in car depreciation, signifying the decline in the value of a motorcycle over time. This decline is influenced by a multitude of factors including age, mileage, condition, market demand, and the reputation of the brand or model. Much like their four-wheeled counterparts, motorcycles experience a decrease in value as they age and accrue mileage. Once you understand this, you would want to look into what the depreciation rates in India are like.

Depreciation Rate For Cars And Bikes As Per Income Tax Act

Under the Income Tax Act, car depreciation rate and bike depreciation rate vary based on specific criteria. For instance -

1️⃣For Vehicles Used Other Than In A Firm To Run Them On Hire -

Asset Class: Plant and machinery

Asset Type: Motorcycle, scooter, motorcar, or bike

Depreciation Rate: 15%

2️⃣For Vehicles Used Other Than In A Company To Run Them On Hire (Acquired Between August 23, 2019, And April 1, 2020) -

Asset Class: Plant and machinery

Asset Type: Motorcycle, scooter, motorcar, or bike

Vehicle Depreciation Rate: 30%

It's important to note that the maximum depreciation rate applicable on any asset under the Income Tax Act is currently capped at 40%. These rates, effective from the financial year 2017-18 onwards, outline the allowable depreciation for cars and bikes used for specific purposes within the specified timeframes.

Similarly, bike depreciation rates are structured in accordance with the Income Tax Act, following the same classification as outlined above.

Depreciation Rate Chart For Cars and Bikes

Understanding the depreciation rates associated with your car or bike is essential for making informed decisions about your vehicle's value over time. Let's delve into the car depreciation rate and bike depreciation rate charts, exploring the percentages tied to the age and condition of these assets.



Depreciation rate to calculate Insured Declared Value (IDV)

< 6 months


> 6 months but < 1 year


> 1 year but < 2 years


> 2 years but < 3 years


> 3 years but < 4 years


> 4 years but < 5 years



Depreciation Rate Of Cars And Bikes After 5 Years

Beyond the five-year mark, the value of your car or bike continues to decline, often rendering the vehicle obsolete. While the condition and serviceability of the vehicle influence its depreciation rate, after five years, a mutual decision between the owner and the insurance provider typically determines the applicable depreciation rate.

The car depreciation rate after five years is collaboratively determined by the insurance provider and the owner, aiming to establish an accurate IDV. Similarly, for bikes, the policyholder and the insurance provider work together to set the depreciation rate, ensuring transparency and minimizing discrepancies.

Understanding these depreciation rates empowers vehicle owners to navigate car insurance and two-wheeler insurance claims and asset valuation effectively, safeguarding their investments in cars and bikes. By staying informed about the depreciation journey of their vehicles, owners can make strategic decisions to protect their assets and maximize their value over time.

What Is Zero Depreciation In Car Insurance?

Zero Depreciation, often known as Zero Dep or Nil Dep, stands as a game-changer when it comes to car insurance. But what exactly is it? Let's break it down.

Zero Depreciation isn't just an add-on cover; it's a shield that nullifies the impact of depreciation lurking in your car insurance policy. Here's how it works -

Typically, when your car endures damage, the insurance claim amount you receive takes into account the depreciation accrued over time due to age and usage. This means you might not get the full value of your car's components during the claim settlement.

Enter Zero Depreciation Cover – the saviour in this case. With this add-on, you're entitled to receive the entire value of your car's components during a claim settlement, sans any deductions for depreciation. In simpler terms, it's like hitting the reset button on depreciation, ensuring you get maximum coverage for your vehicle.

So, what does Zero Depreciation truly mean in this context? It means that the ominous shadow of depreciation has no sway over your car insurance plan. Zero depreciation car insurance isn't just beneficial; it's a strategic move to bolster the coverage of your car insurance, offering unparalleled financial protection for your prized possession.

How To Calculate Car/Bike Depreciation?

Determining the depreciation of your car or bike is now easier than ever, thanks to the IDV (Insured Declared Value) calculators provided by Indian insurance companies on their official websites. Here's how you can calculate car/bike depreciation effortlessly -

  • Access the IDV Calculator: Head to the official website of your preferred insurance provider and locate the IDV calculator tool. It's usually prominently displayed on the homepage or within the insurance section.
  • Enter Vehicle Details: Input relevant information about your vehicle into the calculator. This typically includes your vehicle's registration number, year of manufacture, brand, model, and your city of residency.
  • Evaluate Depreciation: Once you've entered all the necessary details, the IDV calculator swiftly computes your vehicle's depreciation. It takes into account various parameters such as age, condition, and mileage to provide an accurate assessment of your car or bike's worth.
  • Assess the Result: After the calculation process is complete, the IDV calculator instantly furnishes you with the depreciation value of your car or bike. This figure serves as a valuable reference point when selling or insuring a used vehicle.

Concept and Working of Car/Bike Depreciation Calculator

Let’s take a look at the concept and operation of car/bike depreciation calculators -

  • Depreciation represents the disparity between the purchase price of a vehicle and the eventual resale value.
  • An online car depreciation calculator serves to compute the depreciation rate specific to a vehicle.
  • By utilizing a car depreciation calculator, one can determine the depreciation endured by a four-wheeler relative to its age.
  • The car value depreciation calculator aids in discerning the monetary worth of a car and establishing its IDV for potential total loss scenarios.
  • Even in preparation for selling a car, this calculator proves beneficial in obtaining an equitable resale value.

Calculating car depreciation involves two distinct formulas -

1️⃣Prime Cost Method: This method computes depreciation based on a fixed percentage of the vehicle's cost. The formula is -

Cost of Running the Car x (Days you owned it ÷ 365) x (100% ÷ Effective life in years) = Lost Value

2️⃣Diminishing Value Method: Here, depreciation is determined by a percentage of the car's initial value. The formula is -

Value of the Car when Purchased x (Days you owned ÷ 365) x (200% ÷ Effective life in years)

Alternatively, simplifying the process is as easy as using a car depreciation calculator.

How Can You Use A Car And Bike Depreciation Calculator, India?

Utilizing a Car and bike depreciation calculator in India is a pretty simple process. Here's a simple three-step version -

Step 1: Input your car's ex-showroom price into the calculator.

Step 2: Select the year of registration from the dropdown menu.

Step 3: Click on the "Calculate IDV" button.

Voila! You'll receive the suggested Insured Declared Value (IDV) based on the provided information and your car's age.

Depreciation Rate Formula For Bikes

The formula for calculating the depreciation rate for bikes is as follows -

1️⃣If accessories are attached to the bike

IDV (Insured Declared Value) = [Current market value of your bike - depreciation costs] + [accessories cost - depreciation value of accessories]

2️⃣If no accessories are attached to the bike

IDV = Manufacturer’s registered cost of the bike - Depreciation value

It's crucial to grasp the impact of depreciation percentage on your bike's age to determine its IDV accurately. In the below section, we try to get this with the help of examples.

Example of Depreciation For Cars And Bikes

Here's an example of depreciation for cars -

Suppose you purchased a car worth Rs. 5,50,000. After two years, the current market value of the car is Rs. 5,20,000. If the depreciation rate applicable is 20%, the IDV (Insured Declared Value) of your car would be calculated as follows -

  • Initial value of the car: Rs. 5,50,000
  • Current market value after two years: Rs. 5,20,000
  • Depreciation amount: Rs. 5,50,000 - Rs. 5,20,000 = Rs. 30,000
  • IDV @ 80% (considering the 20% depreciation): Rs. 4,16,000 (80% of Rs. 5,20,000)

And for bikes -

Let's assume you bought a bike for Rs. 1,00,000. After two years, the market value of the bike is Rs. 80,000. If the depreciation rate is 20%, the IDV of your bike can be calculated as follows -

  • Initial value of the bike: Rs. 1,00,000
  • Current market value after two years: Rs. 80,000
  • Depreciation amount: Rs. 1,00,000 - Rs. 80,000 = Rs. 20,000
  • IDV @ 80% (considering the 20% depreciation): Rs. 64,000 (80% of Rs. 80,000)

Factors Affecting Depreciation For Cars And Bikes

Several factors influence the depreciation rate of both cars and bikes. Here are some key factors -

  • Make/Model: The make and model of the vehicle play a significant role. Premium or luxury models tend to have higher depreciation rates compared to entry-level or mass-market vehicles. This is often due to higher spare parts and maintenance costs associated with luxury vehicles.
  • Age: As a vehicle ages, its depreciation rate typically increases. This is because the physical and mechanical condition of the vehicle deteriorates over time. Newer vehicles generally retain their value better than older ones.
  • Ownership History: The number of previous owners can impact the resale value and depreciation rate of a vehicle. A single-owner used vehicle usually commands a higher resale value and experiences lower depreciation compared to a second or third-owner vehicle.
  • Physical and Mechanical Condition: The overall condition of the vehicle, both externally and internally, affects its depreciation rate. A well-maintained vehicle that has been regularly serviced tends to have a lower depreciation rate. Conversely, a vehicle with visible exterior damage or mechanical issues may experience higher depreciation. Regular maintenance and addressing any issues promptly can help mitigate depreciation.

How Does Car And Bike Depreciation Affect Car/Bike Insurance?

Car and bike depreciation can have several implications on insurance -

  • Premiums: Motor Insurance premiums are often tied to the value of the insured vehicle. As the vehicle depreciates over time, its value decreases, leading to lower premiums. This is because the cost to repair or replace a depreciated vehicle is lower, reducing the risk for the insurance company. Therefore, if your vehicle has depreciated significantly, you can expect to pay less for insurance premiums.
  • Insurance Claims: In case of an accident, the insurer will assess the current value of your vehicle to determine the claim amount. If your vehicle has depreciated significantly, the claim amount will be calculated based on its depreciated value. This means you may receive a lower payout compared to the vehicle's initial purchase price.
  • Total Loss: If your vehicle is declared a total loss, the insurance compensation may be affected by its depreciation rate. Vehicles that depreciate faster will receive a lower value for insurance compensation. Therefore, the depreciation rate of a vehicle can significantly impact the total loss compensation.
  • Age of the Vehicle: The age of the vehicle also influences insurance premiums. Older vehicles typically have fewer safety features and may be in poorer condition overall. As a result, older vehicles usually have lower premiums compared to newer ones, regardless of depreciation.

How Does Car And Bike Depreciation Affect Buyers And Sellers?

Car and bike depreciation significantly affect both buyers and sellers in the used vehicle market -

  • For Buyers
    Buyers aim to purchase vehicles at the lowest possible price but also consider depreciation rates. Opting for models with lower depreciation ensures better resale value in the future.
    Vehicles with minimal depreciation typically indicate high reliability, good maintenance, and lower ownership costs. Thus, buyers are advised to prioritize their specific requirements rather than solely focusing on the cheapest option.
  • For Sellers
    Sellers seek to maximize returns by selling vehicles with minimal depreciation. Such vehicles offer better resale value, providing sellers with greater benefits.
    While it may involve paying a slightly higher initial price, the investment is often recovered at the time of selling the used vehicle. Additionally, vehicles with low depreciation may offer advantages such as higher reliability, lower maintenance costs, and improved fuel efficiency.

In essence, both buyers and sellers benefit from considering depreciation rates when transacting in the used vehicle market. It not only influences pricing decisions but also reflects the overall condition and value of the vehicle.

Ways To Minimise Car Depreciation

To minimize car depreciation and maximize resale value, consider the following measures -

  • Proper Maintenance: Regular maintenance and a clean service history are key to reducing depreciation. Vehicles in excellent condition with documented service records typically experience lower depreciation rates. Avoid modifications, as they can negatively impact resale value.
  • Choose Vehicles with High Resale Value: Prioritize brands or models known for retaining their value well. Research vehicles with strong resale values before making a purchase. Avoid models that may be discontinued soon, as this can affect resale value negatively.

Summing Up!

In conclusion, understanding car and bike depreciation is not merely about recognizing a numerical decline in value; it's about navigating the intricacies of vehicle ownership with foresight and strategy. Whether you're a buyer, seller, or current owner, grasping the factors influencing depreciation empowers you to make informed decisions that keep your investment safe and enhance its long-term value. From selecting models with high resale potential to investing in zero depreciation insurance, each step taken to mitigate depreciation contributes to a more secure and rewarding ownership experience. By embracing proactive maintenance, smart purchasing decisions, and leveraging available tools like depreciation calculators, individuals can navigate the complex landscape of vehicle depreciation with confidence. Ultimately, while depreciation is an inevitable aspect of car and bike ownership, its impact can be managed and minimized with careful planning, ensuring that your journey on the road remains both enjoyable and financially sound.


  1. How do you calculate depreciation for bikes and cars?
    Bike/car depreciation is determined by its age and mileage. Here's a breakdown:
  • 1 year – 2 years: 20% depreciation
  • 2 years – 3 years: 30% depreciation
  • 3 years – 4 years: 40% depreciation
  • 4 years – 5 years: 50% depreciation
  • For vehicles over 5 years, the rate is decided between the insurer and the owner.
  1. What is the cause of depreciation in a car's/Bikes value?
    Depreciation occurs due to natural wear and tear over time after purchase. It's the gradual reduction in the estimated value of a vehicle within a financial year.
  2. What is IDV and how does depreciation affect it?
    IDV (Insured Declared Value) is the present market value of your vehicle, adjusted for depreciation each year. It's based on the manufacturer's listed selling price at the beginning of the insurance policy.
  3. Can I also get the depreciation amount while claiming under my car/bike insurance policy?
    Yes, you can claim the depreciation amount for your vehicle and its parts by purchasing an additional cover known as zero depreciation cover, which requires paying an extra premium.


Insurance Knowledge Videos