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?
Yes, a Car Loan can help you save on tax if you are a self-employed professional or business owner and use the car for business purposes.
But a salaried employee cannot claim tax deductions on Car Loan interest repayments like with a Home Loan. The reason behind this is that a car is considered as a luxury product.
If you are self-employed and taken a loan to purchase a car for your business, you can claim the interest you pay as business expenses. What this means is you can reduce your taxable income by the amount of interest you have paid in a year. For example, if your income is Rs 10 lakh and you have paid interest on your Car Loan of Rs 25000, then you are liable to pay tax only on Rs 975,000
Besides getting a deduction on the interest you pay, you can also claim tax benefits on the depreciation of the car and other expenses such as fuel and maintenance if you use it for business purposes.
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 benefit 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.