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For the middle-class, purchasing a new car is nothing less than a milestone. Easier daily commute, frequent road trips with the family, or weekend hangouts with friends in the city, car makes everything convenient. And thanks to the availability of car loans, buying a new car has become more affordable on the pocket.<\/p>\n\n\n\n
However, did you know that today you can avail tax savings on a car loan? Yes, that\u2019s right! Like most loan products, such as education or home loans, your car loan is also subject to excellent tax benefits that can help you save significantly. But these benefits come with certain conditions.<\/p>\n\n\n\n
What are these conditions? Are there car loan tax benefits for salaried employees? And how can you claim a tax rebate on a car loan? Here\u2019s all you need to know.<\/p>\n\n\n\n
Since a car is considered a luxury product in India, one is not eligible for any tax deductions on the car loan if one purchases a vehicle for personal use. As salaried individuals cannot treat loan interest payments as an expense, no tax benefit on a car loan for salaried employees is available.<\/p>\n\n\n\n
On the other hand, if you\u2019re a self-employed individual or business owner, you can secure an affordable car loan<\/a> for business purposes and claim the interest payment on the loan as a business expense. This way, your loan interest payments will be deducted from your taxable income.<\/p>\n\n\n\n In addition, you can also enjoy car loan tax benefits on the depreciation of your car and save significantly.<\/p>\n\n\n\n Since there is no car loan tax benefit for salaried employees, you need to show that you\u2019re using the car for legitimate business needs and not personal use to enjoy tax savings.<\/p>\n\n\n\n To claim a car loan tax exemption, you can only treat the interest paid on loan as an expense, not the principal amount. Let\u2019s understand this with an example.<\/p>\n\n\n\n Suppose a business owner wants to purchase a car for commercial needs. They take a car loan of Rs. 15 lakhs at 12% for a year. Here, the EMI will amount to Rs. 1,33,273, of which the interest will be Rs. 15,000 for the first month, and the principal amount equals Rs. 1,18,273.<\/p>\n\n\n\n Here, an individual can only treat the interest of Rs. 15,000 as a business expense to avail of car loan income tax benefits.<\/p>\n\n\n\n Another way to claim a car loan tax benefit is to show your car as a depreciating asset and treat this depreciation as an expense. You can easily claim the depreciation on your car at 15% every year. This will reduce your taxable profits and hence your tax liability.<\/p>\n\n\n\n What\u2019s more, depreciation expense is exempted from tax whether you buy a car with a car loan or not.<\/p>\n\n\n\n Now, there might be situations where an individual buys a vehicle for business and personal use. While you cannot claim tax benefits on a car loan for salaried employees for personal needs, you can still ensure tax savings in this case.<\/p>\n\n\n\n Here, you can divide the interest payment and depreciation in the ratio in which the car is used for personal and business purposes. So, if you use the car 60% of the time for business and 40% for personal use, you can claim only 60% of the expenses (interest and depreciation) as a business expense. This way, you\u2019re still saving on your tax liability, albeit lower.<\/p>\n\n\n\n If you\u2019re a salaried individual looking for tax savings on your new car loan, you cannot enjoy any tax benefits on a car loan for salaried employees. However, as a business owner, you can enjoy tax savings when filing your income tax return<\/p>\n\n\n\n To get a tax rebate on car loan, you have to list the car loan interest paid as a business expense. For this, you can request your lender to issue an interest certificate indicating the amount paid as interest on the car loan to enjoy tax savings.<\/p>\n\n\n\n Today, EVs have become a viable option for people looking for a convenient, affordable, and eco-friendly ride. Electric cars are not just sustainable and efficient, but you\u2019ll be happy to know that you can enjoy excellent tax benefits on car loans for salaried employees when purchasing an electric car.<\/p>\n\n\n\n To encourage EV adoption in the country, the government of India announced certain incentives under a new section 80EEB of the Income Tax Act. Under this section, borrowers are eligible for tax deductions of up to Rs. 1,50,000 on the interest payment of the loan taken for an EV purchase.<\/p>\n\n\n\n Now that you know how car loan income tax benefits work, you can save significantly on your car loan interest payments. Make sure to get the interest certificate from the lender to file your IT return.<\/p>\n\n\n\n And when you\u2019re ready to bring home your dream car, turn to Tata Capital for quick access to funds! Get an affordable vehicle loan<\/a> at the most competitive interest rates and a swift application process.<\/p>\n\n\n\nHow can you avail car loan tax exemption?<\/strong><\/h2>\n\n\n\n
1. You have to show the use of the car for authentic business purposes<\/strong><\/h3>\n\n\n\n
2. You can treat only the interest as an expense<\/strong><\/h3>\n\n\n\n
3. You can show the car as a depreciating asset<\/strong><\/h3>\n\n\n\n
4. Tax benefits on the car used for both personal and business needs<\/strong><\/h3>\n\n\n\n
How to claim car loan tax benefits?<\/strong><\/h2>\n\n\n\n
Tax benefits on purchasing electric cars<\/strong><\/h2>\n\n\n\n
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Key points to remember-<\/strong><\/h2>\n\n\n\n
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Conclusion<\/strong><\/h2>\n\n\n\n