All about income tax benefits on car loan

You’ve finally decided to purchase that new car you’ve been eyeing for months. After visiting the dealership, negotiating a fair price, and signing the loan papers, your next step should be to figure out how to maximize your tax savings.

You’re not alone—many people are unaware of the Car Loan Tax Benefits available in India. In this blog, we’ll break down everything you need to know about claiming a car loan tax exemption. So read on and discover how you can save significantly on taxes with your car loan!

Eligibility for Tax Deductions:Who can avail of car loan tax benefits?

If you are a salaried individual and plan to purchase a new car for your personal use, you cannot enjoy the car loan tax benefit. Because in India, a car loan is considered a luxury product.

Whereas, as a business owner, you can easily enjoy tax benefits on car loans. When taking a loan to purchase a car, show it as an asset for your business. Due to this, you can claim the interest you pay as business expenses. In other words, your tax liability is reduced if you pay interest during the year.

For example, if your annual income is INR 10 lakh, from which you paid INR 25k for the interest on your car loan, then showing the interest payment as a business expense will make you liable to pay tax only on INR 975,000.

How to claim a car loan tax benefit?

To enjoy the car loan tax exemption, you must first file your income tax return (ITR). When filling out the ITR, include the interest you paid during the year as part of your total business expenses. Doing so will help you enjoy tax exemption on your car loan. When claiming a car loan tax exemption, you will need to show official documents having paid interest records. You can get this interest certificate from your bank or lender.

How can a salaried person get tax benefits?

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.

As a salaried person, you can only get a tax benefit on a car loan when purchasing an Electric Vehicle. To encourage the adoption of electric vehicles (EVs) in the country, the government of India is offering tax deductions of up toRs.1,50,000/- on the interest payment of the loan taken for purchasing an electric vehicle. Under a new section 80EEB of the Income Tax Act 1961, any individual planning to purchase their first EV is eligible to get tax benefits on car loans.

Salaried individuals can enjoy tax benefits on both two wheeler insurance and mediclaim policy, with premiums paid for these policies often qualifying for deductions under relevant sections of the tax code. These benefits not only provide financial relief to employees but also incentivize the prudent management of personal health and vehicle coverage.

In a nutshell, you can save a lot of money on your car loan if you claim the tax benefits available to you. However, it's essential to understand the rules and regulations around car loans in India so that you can make the most of the accessible tax benefits. For more information visit Zurich Kotak General Insurance for car insurance policy online.

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