Purchasing a car is a significant accomplishment for many middle-class individuals. It facilitates a convenient daily commute, facilitates frequent road trips with family or friends, or helps to have weekend hangouts with friends in the city. Car loans have made car ownership more affordable, and individuals can now avail tax savings on their car loans.
Income tax benefits on car loans
Similar to education and home loans, car loans come with certain tax benefits. Income tax law offers taxpayers the ability to claim tax deductions for the interest paid on certain loans, for example, home loans. In the case of car loans, the interest paid is only considered an expense when the vehicle is purchased for a business or commercial purpose. Hence, not everyone can claim a car loan tax exemption.
Who can claim car loan income tax benefits?
Salaried employees cannot claim tax benefits on a car loan. However, self-employed individuals or business owners can avail of tax benefits on the interest payment of the car loan if the vehicle is purchased for business purposes. They can also claim tax benefits on the depreciation of the car.
How do tax benefits on car insurance work?
Tax benefits on car insurance are not available. However, if an individual uses the car for business purposes, insurance can be claimed as a business expense.
How to claim car loan tax benefits?
To claim tax rebates on car loans, individuals can list the interest paid on the car loan as a business expense. They can then request a lender to issue an interest certificate that details the amount paid as interest on the loan. This interest certificate will serve as proof while filing an Income Tax Return.
When a car is used for both personal and business purposes, interest payment and depreciation can be divided in the ratio in which the vehicle is used for personal and business purposes. This way, individuals can claim expenses as a business expense and reduce their tax liability.
Additional read: All you need to know about getting a car loan online
Tax benefits on purchasing electric cars
For those who want to purchase an electric car, the good news is that the government of India now provides tax deductions of up to Rs. 1,50,000. The deduction is applicable to the interest payment of the car loan taken for an electric vehicle purchase. This benefit is available under the new section 80EEB of the Income Tax Act. However, these benefits are available only to individuals, and it is a one-time benefit.
It is essential to note that car loan tax benefits vary based on the purpose of the car. While salaried employees cannot claim tax benefits, self-employed individuals and business owners can avail them when the car is used for business purposes. Additionally, electric vehicle purchases offer tax deductions to individuals. Before filing an Income Tax Return, individuals must gather all the necessary documents to claim these benefits.
