Car Loan Tax Benefits and How to Claim It

January 22, 2020

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.

Check your insta Car Loan offer, here.



The contents of this document are meant merely for information purposes. The information contained herein is subject to update, completion, revision, verification and amendment and the same may change materially. The information provided herein is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person‘s nationality, residence or otherwise) be contrary to law or regulation or would subject lClCl Bank or its affiliates to any licensing or registration requirements. This document is not an offer, invitation or solicitation of any kind to buy or sell any security and is not intended to create any rights or obligations. Nothing in this document is intended to constitute legal, tax, securities or investment advice, or opinion regarding the appropriateness of any investment, or a solicitation for any product or service. Please obtain professional legal, tax and other investment advice before making any investment. Any investment decisions that may be made by you shall be at your sole discretion, independent analysis and at your own evaluation of the risks involved. The use of any information set out in this document is entirely at the recipient’s own risk. The information set out in this document has been prepared by ICICI Bank based upon projections which have been determined in good faith by lClCl Bank and from sources deemed reliable. There can be no assurance that such projections will prove to be accurate. lClCl Bank does not accept any responsibility for any errors whether caused by negligence or otherwise or for any loss or damage incurred by anyone in reliance on anything set out in this document. In preparing this document we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us. Past performance cannot be a guide to future performance. ‘lClCl’ and the ‘I-man’ logo are the trademarks and property of lCICl Bank. Misuse of any intellectual property, or any other content displayed herein is strictly prohibited.