Two-wheelers are very popular in our country. Their low costs, easy maintenance, and ease of use in congested areas make them a preferred choice. In current times, many food delivery apps and some other businesses also rely heavily on two-wheelers for running their businesses.
However, if you wish to buy a scooter or bike but do not have enough funds, then a vehicle loan can come to your rescue. Shriram Finance offers you TW loans on convenient terms so that you can fulfil your dreams and aspirations.
Some loans are eligible for income tariff reparation; is a two-wheeler loan also eligible for tax exemption? Read on to find out all about taxation on vehicle loans.
Is a Two-Wheeler Loan Eligible for Tax reclamation?
Dispensation on income tax on a bike loan is subject to certain conditions being fulfilled. This means that not all bike loans are eligible for tax reclamation. Bikes or scooters used for business purposes and registered in the name of the business owner are eligible for tax exemption.
What Conditions Need to Be Met for Tax Retrieval?
As per the Income Tax Laws, tax benefits are available on two-wheelers under Section 80C of the Income Tax Act 1961 if the following conditions are met:
- Income tax deduction can be claimed if the borrower is a small business owner, self-employed individual, or a professional.
- Exemption can be claimed for interest paid on the bike loan by a business owner, freelancer, or self-employed if the vehicle is being used for business purposes.
- Tax deductions can also be claimed on the transportation costs, including maintenance and fuel expenses incurred for business purposes.
- Part of expenses incurred for maintaining the vehicle can also be eligible for tax redemption.
- A prerequisite for claiming the deduction is that the bike should be registered in the owner’s name. If the vehicle is not registered in the owner’s name, even if it is used for business purposes, there is no tax exemption on the bike loan.
How Can Income Tax Reparation Be Claimed?
Borrowers who want to claim a tax deduction on the two-wheeler loan need to file the ITR-4 and must include interest certificates issued by the bank when filing returns. The vehicle owners also need to preserve all receipts, invoices, and documents for the expenses so that the claim can be made when filing returns. However, the decision to allow these expenses as a deduction is based on the Income Tax assessing officer’s discretion. The officer will decide whether the claims made are legitimate or not.
Which Expenses Are Eligible for Tax Exemption?
As per the IT law, income tax redemption on two-wheeler loans is available for the following three expenses:
- Interest: The interest paid by the business owner on the vehicle loan can be claimed as a business expense as this expense is tax-deductible.
- Depreciation cost: Part of the expenses incurred for maintaining the bike can be claimed as a deduction under depreciation cost.
- Transportation cost: Fuel and maintenance expenses can also be claimed as a business expense.
Are there Some Special Provisions for Electric Scooters?
Yes, there are special benefits available for loans taken for the purchase of electric vehicles. The benefits are available for both bikes and cars. These exemptions are the government’s way to push electric vehicle sales and try and decrease pollution levels.
An “electric vehicle” refers to a vehicle powered solely by an electric motor whose traction energy is produced by the traction battery installed inside the vehicle. It has an electric regenerative braking system, which converts the vehicle’s kinetic energy to electrical energy when brakes are applied.
The income tax benefit is available under Section 80EEB if the following conditions are fulfilled:
- The deduction is available only to individuals; any partnership firm, HUF, company, etc., or any other taxpayer category cannot claim benefits under this section.
- Deduction of interest payments up to Rs. 1,50,000 are available under this section.
- The loan should have been availed from a financial institution or an NBFC for buying the electric vehicle.
- The loan must be sanctioned between a period starting from 1st April 2019 to 31st March 2023.
- An individual may use it for business purposes or personal use to claim benefits on the loan taken to buy an electric two-wheeler. If the owner wants to claim it as a business expense, then the rules explained above need to be followed.
- The individual taxpayer must obtain the interest paid certificate and keep documents like tax invoice and loan documents handy when filing returns.
Though there are no tax-free bike loans, benefits under Section 80EEB can lower your tax burden and reduce your overall borrowing cost, which can come as a huge relief.
Are Two-Wheelers Bought for Personal Use Eligible for Tax Reclamation?
Two-wheelers bought for personal use are not eligible for tax exemption unless they belong to the electric-vehicle category. The rules for eligibility to claim this deduction have been discussed above. Business owners can avail of tax redemption, provided they fulfil conditions that also have been discussed above.
Can a Personal Loan Be Used for Buying a Two-Wheeler?
Yes, a personal loan may be used for buying a two-wheeler. Using a personal loan does offer some advantages vis-a-vie a two-wheeler loan. Applying for a personal loan requires far fewer formalities to be fulfilled. The borrower is not required to make a down-payment or pledge the vehicle. Eligibility criteria for a personal loan may be less stringent when compared with a vehicle loan.
Another advantage is the borrower can get the entire amount required to buy the vehicle as a loan if he/she is eligible. When you apply for a scooter or bike loan, you may get 70%-90% of the vehicle’s cost as a loan; this depends on the lender’s policies. Shriram Finance offers up to 100% financing on the on-road price of the bike of your choice, subject to conditions. Check the rates and the terms and conditions for our two-wheeler loans.
Whether to use a personal loan or a vehicle loan to buy a two-wheeler should be made after comparing the interest rates and other costs. Some lenders offer vehicle loans at a lesser interest rate, while others offer personal loans at a comparatively lower rate. With interest rates starting at 11.5% p.a., Shriram Finance offers the most competitive interest rates in the two-wheeler market.
Also, do bear in mind that tax benefits available for a two-wheeler loan are not available if a personal loan is used to finance a vehicle. If buying a vehicle for business use does factor in this aspect too.
Shriram Finance offers you a wide range of products to suit all your needs, whether it’s a business loan or a gold loan, or a loan to buy your dream house.
When considering taking a loan, research well and compare loans on important parameters like loan tenure, interest rate, foreclosure charges (if any), hidden costs, and the ease of getting a loan sanctioned. Choose a product that fulfils your needs and a lender that offers a seamless and hassle-free lending process. Being aware of the tax rules lets you avail the maximum benefits and reduce your overall cost of borrowing in some cases.