A loan is one of the best alternatives for people who don’t have ample savings and are facing a monetary shortfall. Moneylenders and non-banking financial companies (NBFCs) target the basic and essential requirements following which they design customized credit facilities. Two-wheeler loans are getting popular with the introduction of exclusive bikes and the penetration of the automobile market in the remote and rural areas.
People are entitled to claim an income tax deduction on the two-wheeler loans that are subject to a set of definitive conditions. According to the current income tax framework, a person can claim an income tax deduction on the two-wheeler loan if you are a sole proprietor or a self-employed professional. These individuals can claim tax deductions for availing two-wheeler loan for business purposes.
Moreover, the deduction can also be claimed on the transportation costs, including fuel and maintenance of the two-wheeler incurred as a part of the business expense. In many cases, the portion of expenses incurred to maintain the vehicle’s life can also be claimed as the deduction.
Tax exemptions on two-wheeler loans
As per the present Income Tax guidelines, a two-wheel loan borrower can claim a tax deduction on interest paid on loan as a business expense, if they are a self-employed or a small business owner, who is using the vehicle for professional purposes.
A self-employed individual can claim tax deductions from his/her total taxable income. It includes all the expenses that one makes for the business growth as per the Income Tax Act of 1961. Most importantly, three tax advantages come along when you buy a Two-wheeler loan for your business.
1. Interest on the Business Expense
When you claim and prove the interest paid by you on the two-wheeler loan is a business expense, you can claim your interest to be tax-deductible. As a business owner or a freelancer, you are completely eligible for this benefit.
2. Transportation Cost
You will be eligible for deductions for your transportation cost. It also includes the maintenance cost of the vehicle as it is a part of business expenses.
3. Depreciation Cost
The expenditure that you incur to upkeep your two-wheeler is also a basis for you to claim a tax deduction.
Eligibility to claim a tax exemption
- The vehicle that you are about to purchase must be used for business.
- The IT assessing officer has the veto power to determine the legitimacy of the claim of the tax deduction.
- The registration of the vehicle will require the name of the business owner.
- There is a need to file your returns in ITR-4, including the interest by the banks.
- It is essential to keep the receipts, invoices and other required documents to claim the expenses.
How to avail tax benefit on a personal loan?
Generally, tax benefits are offered on principle payment or the premium payment. This is because it helps in reducing the burden of the people in the loan payment. In a broad sense, two wheeler loan is considered to be a loan instrument, and there are no tax benefits for it in India. It is also the same if personal loans are taken for the purchase of the two-wheelers.
Tax benefits are given only when a two-wheeler is purchased as an asset for business purposes. When an individual proves this, he/she will be eligible for the tax benefits under section 80C of the Income Tax Act, 1961.
Two-wheeler loans help the people of India widely in purchasing a two-wheeler. This is the reason for the increasing number of bike and scooter purchases in India and also other types of two-wheelers. Many banks and NBFCs also provide loans and EMI options through vehicle loans.