How To Claim Tax Benefits On Car Loan?

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When purchasing a car, financing it through a car loan is a popular option. However, many individuals are unaware of the tax benefits that can be availed on a car loan. Understanding how to claim these benefits can help reduce your overall tax liability, making your car purchase more cost-effective.

What is the vehicle loan tax exemption?

The vehicle loan tax exemption refers to the tax deductions that can be claimed on the interest paid on a car loan. While a car loan does not typically offer the same extensive tax benefits as a home loan, there are specific scenarios where tax deductions can be claimed.

Eligibility for tax benefits on car loan

Unfortunately, salaried individuals using the car for personal purposes are not eligible for any tax benefits on the interest paid on a car loan. That said, if you are a business owner or a self-employed professional and use the vehicle for business-related activities, the interest paid on the car loan can be claimed as a business expense under Section 37(1) of the Income Tax Act.

How to claim tax paid on a car loan?

To claim tax benefits on a car loan, follow these steps:

File Income Tax Return: Ensure you file your income tax return under the appropriate business category.
Gather Documents: Collect documents like your lender's car loan interest certificate and proof of business car usage (bills, logs).
Calculate Deductible Interest: Determine the portion of car usage for business purposes and calculate the tax-deductible interest amount.
Claim Deduction: Declare the calculated car loan interest as a business expense while filing your income tax return.

It is advisable to consult with a tax advisor or accountant to ensure that you correctly claim the deductions and comply with all tax regulations.

Other ways to save taxes on car purchase

Apart from the direct tax benefits on the interest paid for a car loan, there are other strategies to save taxes when purchasing a car:

Depreciation: Business owners can claim depreciation on the car as a business asset. This depreciation can be deducted from your taxable income over the years, reducing your overall tax liability.
Additional Expenses: Expenses related to the car's maintenance, fuel, and insurance can also be claimed as business expenses, provided the car is used for business purposes.
Leasing: Instead of purchasing a car, consider leasing it. Leasing a vehicle allows you to claim the entire lease payment as a business expense, offering a more flexible way to manage taxes.

Endnote

By maintaining accurate records, consulting with tax professionals, and staying informed about tax laws, you can make the most out of your car loan and enjoy the additional financial relief that comes with these tax benefits. To pay for a car loan online, you can use a debit card like 811 Debit Card by Kotak811, offers a comprehensive tracking of all payments that can be used to claim tax benefits.

FAQs

1. Does a car loan come under 80C?

No, an individual's car loan does not qualify for deductions under Section 80C. However, business owners can claim interest paid as a business expense.

2. How much ITR is required for a car loan?

Most lenders prefer at least two years of ITR showing a stable income. The exact amount depends on the loan amount and lender requirements.

3. Is there any tax exemption on EV car loans?

Yes, the EV owners can get a tax exemption of ₹1.5lakhs of interest paid on their loan amount under 80EEB.

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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.