Depreciation on Motor Vehicle: Depreciation means a reduction in the value of an asset over time due to wear and tear. Depreciation is a way to allocate the cost of the asset over the useful life of the asset. Income Tax Act provides rate of depreciation to be provided on assets every year.
As per provisions of Section 32 of the Income Tax Act, 1961 these conditions must be fulfilled for availing depreciation as expenses from PBGP income-
- The asset must be owned by the assessee either individually or jointly.
- The asset should be used wholly for business or profession purpose.
- Rate of depreciation must be prescribed in the Act.( If the rate is not mentioned, no depreciation is allowed)
Rates of Depreciation on Motor Vehicle
CBDT issued a Notification No. 69/2019 dated 20.09.2019 and amended the rate of Depreciation on Motore Cars and other Motor Vehicles under the Income Tax Rules, 1962 for FY 2019-20.
To calculate depreciation on motor vehicles, motor vehicles are divided into two groups-
Group 1- Motor vehicles not involved in the business of running on hire, include 4-wheeler motor car.
Group 2- Motor buses, motor lorries and motor taxis used in the business of running them on hire, include- Trucks.
| Particular | Bought and put to use after 1st April 2019 but before 23rd August 2019 | Bought and put to use on or after 23rd August 2019 but before 1st April 2020 |
| Group 1 | 15% | 30% |
| Group 2 | 30% | 45% |
Example- BabaTax bought motor truck for Rs 50,00,000 and put to use on-
Case 1 – 20th August 2019
Depreciation for the year = 50lakhs X 30%= 15lakhs
Case 2 – 20th September 2019
Depreciation for the year = 50lakhs X 45%= 22.5lakhs
Read Also: Depreciation Rates for AY 2020-21 : Section 32 of Income Tax Act, 1961
Method of depreciation
Under the income tax act, depreciation is allowed only on written down value basis for motor vehicles.
Example- A motor car was bought on 1-4-2019 for Rs. 10,00,000, so depreciation for FY 2019-20 = 10,00,000 X 15% = 1,50,000
Value of the motor car on 31-3-2020= 10,00,000 – 1,50,000 = 8,50,000
Depreciation for FY 2020-21 = 8,50,000 X 15% = 1,27,500
Read Also: Difference between Section 44AD, 44ADA and 44AE of Income Tax Act
Time Limit for claiming Depreciation
| S. No. | Particular | Amount |
| (a) | The asset has been put to use for 180 days or more in the FY. | Full Rate (100%) |
| (b) | The asset has been put to use for less than 180 days in the FY | Half Rate (50%) |
Examples-
| Type of Motor Vehicle | Bought on | Put to use on | Rate of depreciation to be charged |
| Motor Car | 05-08-2019 | 20-08-2019 | 15% |
| Motor Car | 05-08-2019 | 20-09-2019 | 15% |
| Motor Car | 05-08-2019 | 20-11-2019 | 7.5%(15% X 0.5) |
| Motor Car | 05-09-2019 | 20-09-2019 | 30% |
| Motor Car | 05-09-2019 | 20-11-2019 | 15%(30% X 0.5) |
| Truck | 05-08-2019 | 20-08-2019 | 30% |
| Truck | 05-08-2019 | 20-09-2019 | 30% |
| Truck | 05-08-2019 | 20-11-2019 | 15%(30% X 0.5) |
| Truck | 05-09-2019 | 20-09-2019 | 45% |
| Truck | 05-09-2019 | 20-11-2019 | 22.5%(45% X 0.5) |
Read Also: Depreciation – How to calculate depreciation under Income Tax?
Important Points for depreciation on Motor Vehicle
1. Higher rate of depreciation is also applicable for second-hand or previously used motor cars or motor vehicles purchased in the specified period since there is no condition that eligible vehicle should be new.
2. It’s a one-time benefit of higher depreciation. In other words, if the asset is acquired and put to use within the specified period (from 23.08.2019 to 31.03.2020) then only the higher rate of depreciation shall be available for AY 2020-21 and all the subsequent assessment years. This benefit shall expire from 01.04.2020. Normal rates of depreciation shall apply in those cases.
3. Only acquisition is not sufficient, it must be ‘put to use’ on or before 31.03.2020. Therefore, care is required by buyer to avoid point of dispute as to the date on which vehicle was put to use. If full depreciation is desired then the vehicle must be put to use on or before 01/10/2019.
4. Registration and other procedure must be ensured, documented and proofs must be kept, to satisfy the Assessing Officer and to avoid dispute about date of put to use.
5. Higher rate have been prescribed only for motor cars, motor buses, motor lorries and motor taxis. Higher rates are not prescribed for tractors, trailers, Mopeds, Bikes, Bi-cycle etc.(this subject to Interpretation)
Read Also: FAQs on Income Tax Audit under section 44AB of Income Tax Act, 1961
The author of the above article is Aditya Kishore.
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