Buying a car during Diwali is a major purchase for many families, but it may also raise a tax question: can you claim any income tax benefit on your new vehicle before March 31? The answer depends on how the car is used. While a personal vehicle generally does not qualify for tax deductions, cars bought for business purposes may be eligible for certain benefits.
Can You Claim Tax Benefits On A Personal Car?
But if you have bought a car for your personal use, then you cannot claim the purchase cost or the interest on the car loan as an income tax deduction. So even if you have purchased a car worth Rs. 12 lakh during Diwali, you cannot simply write off that amount from your income. This is not the case with business people and professionals.
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What If You Use Your Car For Business?
Imagine Rahul, who is running a consultancy company and buys a car costing Rs. 10 lakh in the month of November. He uses it frequently for business purposes.
Here, he can get the benefit of depreciation on the portion of the car used for business purposes, as per the income tax laws. In case of less than 180 days' usage of the car during the year, depreciation is allowed up to 50% of the normal rate for that year.
The cost incurred on running and maintenance of the car will be allowable as per the rules.
Don't Forget About TCS
There is another cost you should think about when you buy a car: Tax Collected at Source (TCS). Under the rules for income tax, if you buy a motor vehicle that costs more than Rs. 10 lakh, the dealer deducts TCS at 1% of the total price you pay.
For example, imagine you buy a car that costs Rs. 12 lakh during Diwali. The dealer will take Rs. 12,000 as TCS. This amount is not a cost for income tax or something you lose forever. You can credit the TCS you paid when you file your income tax return, as long as the rules allow it.
Remember to check if the TCS amount is shown in your Form 26AS or in your Annual Information Statement (AIS). You can use the credit to reduce your tax bill or ask for a refund if you paid more than you should have.
What About Electric Cars?
There is another important point. Section 80EEB offered a deduction of up to Rs. 1.5 lakh on interest paid on loans taken to purchase electric vehicles, but only where the loan was sanctioned between April 1, 2019, and March 31, 2023. A new car loan taken now does not qualify under this provision.
Also Read: Can A Bank Refuse To Return Your Gold After You Repay A Loan?
Conclusion
Before March 31, check how your car is being used and whether you qualify for depreciation or business-related expenses. A little tax planning can help you avoid missing legitimate benefits.
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