Why declining-balance, not straight-line
Straight-line depreciation deducts the same rupee amount every year; declining-balance depreciation deducts the same percentage of whatever the current value is that year. Since the current value keeps shrinking, the rupee amount deducted also shrinks each year — this matches how vehicles actually lose value in practice, dropping fastest right after purchase and more slowly as they age.
The formula
Current value = purchase price × (1 − annual rate)^years. Each year's depreciation is applied to the previous year's already-reduced value, which is what makes this "compounding in reverse" rather than a flat yearly deduction.
A worked example across three and five years
A vehicle purchased for ₹10,00,000 depreciating at 15% per year is worth ₹6,14,125 after 3 years (a total depreciation of ₹3,85,875) and ₹4,43,705.31 after 5 years (a total depreciation of ₹5,56,294.69). Notice the value doesn't just keep dropping by 15% of the original ₹10,00,000 each year — it drops by 15% of whatever the value was at the start of that specific year.
Why the first year loses the most in rupee terms
In year 1 alone, the same vehicle drops from ₹10,00,000 to ₹8,50,000 — a ₹1,50,000 loss. By year 5, the annual loss is smaller in rupee terms even though the percentage rate hasn't changed, simply because 15% of a smaller number is a smaller number. This is exactly why buying a car that's a year or two old, after the steepest part of the depreciation curve has already happened, is a common strategy for reducing total ownership cost.
Why the rate itself varies by vehicle and usage
The annual depreciation rate isn't a single fixed number across all vehicles — it depends on the make, model, mileage, condition, and market demand for that specific vehicle. A rate like 15% is a reasonable general estimate for illustration, but an accurate estimate for a specific vehicle should be based on that vehicle's actual resale-value trend rather than a generic assumption.