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Truck depreciation explained for owners
Every month your truck is worth a little less. That loss is depreciation. It never shows up as a bill, so it's easy to ignore, until it's time to replace the truck and the money isn't there. This guide explains depreciation in plain terms, compares three ways to estimate it, and shows how to use the figure.
In short
- Depreciation is the cost of the truck wearing out, spread over its working life.
- It reduces profit but uses no cash in the month it's counted.
- For planning, ₹24 lakh of lost value over 10 years is about ₹20,000 a month, or ₹2.40 per km over 10 lakh km.
- Depreciation for income tax follows its own rules. Ask your chartered accountant for those.
What depreciation is, and isn't
Our example truck costs ₹36 lakh. We assume it'll be worth about ₹12 lakh after 10 years of work. The ₹24 lakh difference is a real cost of doing business. It's just paid all at once, on the day you buy the truck, rather than trip by trip.
Depreciation spreads that cost over the years the truck earns. It isn't a payment you make. That's why our EMI vs profit guide counts it in profit but leaves it out of monthly cash.
Three ways to estimate it
1. Straight line: the same amount each month
(Purchase price − expected resale value) ÷ months of use
| (₹36,00,000 − ₹12,00,000) ÷ 120 months | ₹20,000/month |
This is simple and steady, and it's good for planning monthly profit.
2. Per kilometre: follows how hard the truck works
(Purchase price − expected resale value) ÷ expected lifetime km
| ₹24,00,000 ÷ 10,00,000 km | ₹2.40/km |
| At 8,000 km a month | ₹19,200/month |
This is useful for pricing, because it adds the wear of each kilometre to the trip's cost. Our running cost per km guide includes depreciation in the full cost per km.
3. Reducing balance: more in the early years
A fixed percentage of the remaining value each year. The rate below is only an example of how the method works, not a tax rate.
| Year 1: 15% of ₹36,00,000 | ₹5,40,000 |
| Year 2: 15% of ₹30,60,000 | ₹4,59,000 |
| Year 3: 15% of ₹26,01,000 | ₹3,90,150 |
| Value left after 10 years | about ₹7,09,000 |
This often matches resale prices better, because trucks lose the most value in their first few years.
Tax is different: for income tax, depreciation is worked out using the rates and rules set in tax law, and they may not match any of these planning figures. Use your chartered accountant's figure for your tax return, and your own estimate for running the business.
How to use the number
- In profit: subtract it every month, so you know whether the truck really earns more than it wears out.
- In pricing: include the per-km figure in your full cost, so long-run rates pay for the truck as well as the diesel.
- For replacement: setting aside an amount close to the monthly depreciation builds the down payment for the next truck. Without that, the next truck needs a bigger loan.
- Not in monthly cash: it isn't a payment. Monthly cash looks at the EMI instead.
Run it with your own numbers
FleetProfit's ownership screen keeps depreciation, interest and the EMI apart, so you can see the truck's accounting profit and its cash side by side.
Open ownership and loansCommon questions
Is depreciation a cash expense?
No. The cash was spent when the truck was bought. Depreciation spreads that cost over the truck's working life, so it reduces profit each month but involves no payment.
Which depreciation method should I use?
For planning, straight line is simplest and per kilometre suits pricing. For your tax return, use the method and rates your chartered accountant applies under tax law.
Why set money aside for depreciation?
So the down payment for the next truck builds up while the current one earns. Otherwise replacing the truck needs a bigger loan.