Car Loan Tax Benefits and How to Claim It
A variety of loans, such as Education Loan and Home Loan, come with associated tax benefits for individuals and business owners. But are such benefits also available for loans taken for a car purchase? If yes, then how can you claim it? Read this post to find out.
People often take loans due to tax benefits.
Are such deductions also available when you take a Car Loan? Let us have a look.
Tax benefits on Car Loans
Car is considered a luxury product in India and, in fact, attracts the highest Goods and Services Tax (GST) rate of 28% currently. Thus, you are not eligible for any deductions on your Car Loan if you are buying for your personal use.
However, if you are buying a car for commercial use, you can show the interest paid in a year as an expense and reduce your taxable income. The tax deduction is only available for the interest component of the loan and not for the principal amount.
How does tax benefit on Car Insurance work?
Let us assume that you are self-employed or own a business and want to purchase a car for commercial purpose. The car that you are planning to buy costs Rs 25 lakh and you take a loan of Rs 20 lakh at 12% for 1 year for the same. If the taxable profit of your business in the current year is Rs 50 lakh, Rs 2.4 lakh (12% of Rs 20 lakh) can be deducted from this amount.
So, your total taxable profit for the year will be Rs 47.6 lakh after deducting the interest that you paid towards repaying the Car Loan.
Other ways to save taxes on car purchase
Another way to save taxes on your car purchase is to show it as a depreciating asset and show the depreciation as an expense. You can depreciate your car up to 15% in a year. This depreciation can be deducted whether you opt for a Car Loan or not.
How to claim Car Loan tax benefit?
Claiming Car Loan tax benefits is easy as long as you are actually using the car for legitimate business purposes. For claiming the benefit, at the time of filing tax returns include the loan interest paid in a year in the business expenses column.
You can get in touch with your loan provider to get an interest certificate, so that you can know the exact interest you have paid in the year.
Selecting a lender for Car Loan
So, tax benefit on a Car Loan is only available to self-employed professionals or business owners when the loan is taken for a vehicle that will be used for commercial purposes. But even if you are a salaried employee, there are still other Car Loan benefits that you can avail based on the lender you select.
For instance, banks now offer a pre-approved Car Loan to selected customers. Loans of up to 100% of the on-road price of the car, part-prepayment and full-prepayment facility, and zero processing fee are some of the other top benefits.
Apply for a Car Loan, and you are sure to experience several benefits, irrespective of whether you want to purchase a car for commercial or personal use.
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