We take loans to fulfil our requirements like buying a house, financing child's education or buying a car, but the repayment of these loans along with the interest levied on it affect our monthly as well as annual finances. However, one can avail huge tax benefits on loans. The Government of India offers tax benefits for individuals, though these may vary according to the type of loan taken. Talking about the car loan, is there any way to get tax exemption on interest paid on auto loans? Or will it be different for salaried individuals or self-employed professionals?
Sadly, the Government of India is not giving tax benefits for salaried individuals on a car loan. According to 2014-15 Union budget, deductions from payable tax can be availed only if you are a businessman or self-employed. If you are a businessman, you need to declare the profit or capital gains earned from your work and your vehicle is used for business purpose. In this case, you can avail tax exemption on the interest as well as depreciation of the vehicle.
Let’s understand the whole concept with an example. A person, working in a private company, has owned a new car for daily commuting purpose. He will get the convenience of owning a brand new passenger car, but he will not be eligible for any tax benefit on an auto loan. Taking about the other way, if you are a small businessman with a departmental store and you bought a new car. Now, you need to declare your earnings as deductible under section 80C. In this case you will be able to include the interest paid for your car finance for tax exemption.
A few individuals, however, try a risky way by buying a vehicle through the money coming from home loan. However, this could put their property at the highest risk in case of any payment defaults. You can also buy car by taking personal loans, but the deduction will be applicable only for a declared business and its earnings.
