While owning a car in India brings convenience and freedom, it can also impact your tax calculations. Car loans can offer valuable tax benefits, especially for self-employed individuals and business owners.
Learn how your car loan can save you money on your income tax.
Since automobiles are regarded as luxury goods, car loans are not exempt from taxes for salaried employees. Therefore, obtaining a car loan will not help you in lowering your income tax if you are a working individual.
You should be aware, though, that self-employed people are excluded from this rule if they obtain a car loan for a vehicle to use for business. Section 80C of the Indian Income Tax Act governs these types of auto loans.
If you use your car for business purposes, you can also claim tax benefits on the depreciation of the vehicle and other costs like fuel and maintenance, in addition to the interest you pay is deductible.
Now let us look at the car loan benefits in income tax in detail.
You can deduct the interest paid on a car loan from your taxes if you own your own business or are self-employed. For cars used for business purposes, self-employed people may be eligible for auto loans under section 80C of the Income Tax Act. This reduces your taxable income, lowering your overall tax liability.
You can deduct depreciation from your business expenses as your car's value decreases over time. This lowers your taxable income even more. Cars depreciate at different rates based on the type of vehicle and fuel type.
You can deduct regular maintenance costs and fuel expenditures if your car is used exclusively for business. Remember to save all invoices and receipts for your records.
These benefits are limited to self-employed workers and business owners who utilize their vehicles for work-related travel.
Car loans taken out for personal use are not deductible for salaried individuals. If the Income Tax officer finds that you haven't used the car for business purposes, they may reject your tax claim.
You must keep accurate records, such as documentation for business travel, bills, receipts, and loan statements, to be eligible for these deductions.
To qualify for the tax benefits associated with a car loan, the vehicle must be purchased and registered in the name of the business or the business owner.
Choose a model based on your business needs and consider the depreciation rate.
You can maximize your tax benefits and ensure that you comply with all regulatory requirements by consulting a tax advisor.
The Indian government announced some incentives under a new section 80EEB of the Income Tax Act to promote the adoption of electric vehicles (EVs) in the nation. Borrowers who take out a loan to purchase an electric vehicle (EV) may be able to deduct up to Rs. 1,50,000 in taxes from their interest payments.
Individuals are the only ones eligible for the tax benefit on auto loans for EV purchases. Therefore, you are not qualified for tax savings if you are a company, partnership firm, HUF, or any other kind of taxpayer.
Now that you are aware of how car loan tax benefits work and are claimed, make sure you adhere to the right processes and regulations in order to qualify for tax exemptions. Additionally, make sure your bank gives you an interest certificate. This will aid in accurately filing your income tax returns.
Car loans in India can be a useful tool for self-employed people and business owners to maximize their tax calculations, even though they might not provide direct tax benefits for personal use.
You can make the most of your car loan by learning about the qualifying requirements, taking advantage of applicable tax deductions, and looking into electric vehicle options.
Professional advice and competent planning can assist you in realizing the full tax benefits of a car loan and working towards a secure financial future.
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Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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