If you take a home loan, you can get the benefit of tax exemption of up to Rs 3.5 lakh from the government. Under the Income Tax Act, exemption is given on interest and principal under Section 80C and 24B. This is a rule and you must be aware of it. However, there is generally no tax exemption on car loans as it is seen as a luxury expense. But, if you are a doctor, engineer, lawyer or any other professional and are using your car for business purposes, then you can avail tax exemption. Today we are going to tell you about this.
This is the calculation
If you use the car for business or professional purposes, you can avail tax exemption on car loan interest. For example, if you own a travel agency or run your own car on rent, the interest amount can be shown as cost of business in your tax return. Apart from this, annual fuel expenses and maintenance costs can also be included in the tax exemption. Exemption can also be claimed on depreciation cost i.e. reduction in the value of the car. Depreciation cost is 15-20% per year.
understand with example
Suppose, if your income is Rs 10 lakh and you have paid Rs 70,000 in car loan interest, then your tax calculation will be Rs 9.30 lakh. With fuel and maintenance costs, the tax benefits can be even higher.
Don’t make this mistake even by mistake
Experts say that while claiming tax exemption, it is also necessary to provide proof that the car is being used in business. If a wrong claim is made, the Income Tax Officer can reject it and also impose a penalty.
While on one hand there is direct tax exemption on home loan, on the other hand tax exemption on car loan is available only on the condition of commercial use. Thus, professionals and businessmen can convert their car-related expenses into tax benefits, provided proper documentary evidence is available.