13 March, 2025
Synopsis:
Salaried employees are not eligible for tax deductions on Car Loan interest, as the car is not used for business purposes.
Self-employed individuals can claim tax deductions on a Car Loan if the car is used for business purposes.
To claim tax benefits on a Car Loan, self-employed individuals can request an interest certificate from HDFC Bank.
In India, Loans and tax deductions often go together. You can get tax exemptions for Home Loans, Education Loans and, even in some cases, for Personal Loans. But what about Car Loans? Can you use your Car Loan to save on tax? Here is everything you need to know about tax benefits of a Car Loan.
Tax Benefit on Car Loan for Salaried Employees
Salaried employees generally do not benefit from tax deductions on Car Loans. This is primarily because a car is considered a luxury item, and such items are not eligible for the same tax benefits as Home Loans. As a salaried individual, you are unable to claim deductions on the interest paid for a Car Loan.
Additionally, there are no claims available for depreciation or business-related expenses such as fuel, maintenance, and insurance, as the car is not used for business purposes. However, if the car is used for business purposes, there might be certain claims that could be made, but these are subject to specific conditions and requirements.
Tax Benefit on Car Loan for Self-Employed Professionals
For self-employed individuals or business owners, there may be several tax benefits available when using a car for business purposes. First, the interest paid on the Car Loan can be claimed as a business expense, which might help reduce the taxable income. For example, if your income is ₹10 Lakh and you have paid ₹25,000 in interest on the Car Loan, your taxable income could be reduced to ₹9,75,000.
Moreover, self-employed professionals can claim depreciation on the car, which further reduces taxable income. In addition to depreciation, business-related expenses such as fuel, maintenance, and insurance may also be deductible, provided the car is used for business purposes.
To qualify for these benefits, the car must be used primarily for business and should be registered in the name of the business or the business owner, particularly in the case of a proprietary firm or practicing professional.
Some points to remember:
To be eligible to claim tax deductions on your loan, you must use the car for legitimate business purposes
The IT assessing officer is given a discrete power to veto the deduction if she believes you have not used the car for professional or business reasons
The car must be registered in the name of the business or business owner (if it’s a proprietary firm or a practising professional)
How to Claim Car Loan Tax Benefit?
To claim tax benefits on your Car Loan, you must first file your returns. Include the interest you paid during the year as part of your total business expenses.
To know how much interest you paid, request your bank to issue an interest certificate. That will clearly tell you the amount you have paid as interest. Keep this document handy.
A Car Loan offers plenty of benefits. Are you looking to apply for a Car Loan, click here now!
Read more on the requirements of the Car Loan here.
* Terms & conditions apply. Car Loan disbursal at sole discretion of HDFC Bank Ltd. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
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