Introduction:
In India, vehicles are considered a luxury item, and many individuals take out loans to buy their dream cars. But did you know that you might get a tax break on your auto loan?
That's right, you read that correctly. Car loans, like school and house loans, are tax deductible. While automobiles purchased for personal use may not be eligible for car loan tax exemptions, you may be able to claim exemptions if you are a self-employed professional or business owner who is using the car for business reasons. Because vehicles are considered luxury goods, loans for personal use cars are not eligible for tax exemption.
If you're a businessperson who took out a loan to buy a car for your company, though, you can deduct the interest as a business cost. You can deduct the interest you pay on your auto loan each year from your taxable income. Aside from the interest deduction from taxable income, you can also claim tax savings on your vehicle's depreciation.
How to deduct the cost of a car loan from your taxable income
Simply put, if you own a business or are self-employed and take out a loan to purchase a vehicle for your business, you are entitled for tax benefits. How does a vehicle loan tax refund work?
For example, suppose you operate a business and have taken out a loan to purchase a vehicle for it. You borrow Rs 10 lakh for a year at a rate of 10 percent. Assume you have a total taxable revenue of Rs 30 lakh from your firm. When submitting your tax returns, you can deduct your interest from your taxable income.
Deduct the interest you paid on your automobile loan in that year from your taxable income when seeking a tax rebate on it. Interest paid can be written off as a business expense.
Even if you haven't taken out a loan to buy the automobile, there are still methods to save money on taxes. You can do so by presenting your automobile as a depreciating company asset. Depreciation can also be claimed as a business expenditure. The maximum amount of depreciation that may be taken in a year is fixed at 15%.
Conclusion
There is no vehicle loan tax benefit for salaried persons purchasing a car for personal use. Self-employed persons and enterprises, on the other hand, can claim tax deductions for automobile loans utilised for commercial reasons. If you want to take advantage of these tax breaks, be sure the automobile is being utilised for genuine business purposes.
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