Motor vehicles represent a significant capital investment for businesses, whether used for employee travel, transportation of goods, or commercial fleet operations. The Direct Tax Code (DTC) 2025 provides specific depreciation rates for motor vehicles under Section 33, with distinct rates for general business use and commercial hire operations. This guide analyses the depreciation rates for motor vehicles and commercial fleet.
The Depreciation Framework for Motor Vehicles
Section 33 — Deduction for Depreciation
Section 33 provides for deduction in respect of depreciation of tangible and intangible assets used for business or profession.
Method of Depreciation
Depreciation is calculated on the Written Down Value (WDV) method for block of assets.
Block of Assets
Motor vehicles form part of the block of assets for plant and machinery. The depreciation rate depends on the specific use of the vehicle.
Motor Vehicle Depreciation Rates
General Business Use — 15%
Motor vehicles used for general business purposes (including travel by owners or employees) are eligible for depreciation at 15%. This applies to:
- Motor cars used for business travel
- Vehicles used for employee transportation
- Vehicles used for business purposes (not on hire)
Commercial Hiring — 30%
Motor vehicles used for commercial purposes, including hiring operations, are eligible for depreciation at 30%. This applies to:
- Motor buses used in a business of running them on hire
- Motor lorries used in a business of running them on hire
- Motor taxis used in a business of running them on hire
Special Period — August 2019 to April 2020
Motor cars acquired on or after 23rd August 2019 but before 1st April 2020 and put to use before 1st April 2020 are eligible for depreciation at 30% (the higher rate applicable to vehicles on hire).
Comparison of Rates
| Vehicle Type | Depreciation Rate |
|---|---|
| Motor cars (general business use) | 15% |
| Motor cars (acquired Aug 2019 – Apr 2020) | 30% |
| Motor buses (on hire) | 30% |
| Motor lorries (on hire) | 30% |
| Motor taxis (on hire) | 30% |
Special Rules
Less than 180 Days — Section 33(4)
If a motor vehicle is acquired during the tax year and put to use for less than 180 days, the deduction shall be restricted to 50% of the prescribed rate (i.e., 7.5% instead of 15% for general use, or 15% instead of 30% for commercial hire).
Partial Use — Section 33(3)(b)
If a motor vehicle is partly used for the purposes of the business or profession, the deduction shall be restricted to the fair proportionate part thereof.
Additional Depreciation — Section 33(8)
Additional depreciation is not available on motor vehicles as they are specifically excluded from the scope of Section 33(8).
Practical Compliance for Commercial Fleet Operators
1. Classify Vehicles
- Determine whether the vehicle is used for general business purposes or on hire
- For vehicles on hire, verify that the business is running them on hire
2. Calculate Depreciation
- General use: 15% on WDV
- Commercial hire: 30% on WDV
- Apply the 50% rule if the vehicle was used for less than 180 days
3. Maintain Records
- Maintain records of vehicle acquisition and usage
- Maintain records of depreciation calculations
- Maintain records of hiring operations (for 30% rate)
4. Claim Depreciation
- Claim depreciation in the tax return
- Ensure the claim is supported by proper documentation
Consequences of Non-Compliance
Disallowance of Depreciation
If the depreciation is incorrectly claimed (e.g., claiming 30% for a vehicle not used on hire):
- The deduction may be disallowed
- Income may be recomputed
- Interest and penalty may be levied
Penalty
Non-compliance may result in penalty under Section 439 for under-reporting of income.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on motor vehicle depreciation for commercial fleet operators. Our direct tax experts help businesses understand the depreciation rules, classify vehicles correctly, and navigate the regulatory framework. We assist in depreciation computation, compliance review, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on motor vehicle depreciation or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex motor vehicle depreciation framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Vehicle Classification: Guidance on correct vehicle classification
- Depreciation Computation: Assistance with accurate depreciation calculation
- Compliance Review: Review of depreciation compliance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your motor vehicle depreciation matters.