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Tax Indemnity for Two Wheeler Loans

Posted: 19th October, 2021

Updated: 8th February, 2023

Written by -

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One of the most desirable forms of transportation for middle-class families is the two-wheelers industry. These make the daily commute easy and affordable as it is comparatively economical to opt for a two-wheeler rather than drive a four-wheeler low-cost range car! These are not only (fuel-efficient) affordable and easy to drive, but most importantly, time-effective.

  1. 1. Even though the availability of two-wheelers is straightforward in the Indian market space, outrightly shelling out cash for it is a tad difficult.
  2. 2. Banks/NBFCs support and enter the picture at this stage. These financial institutions are bearing the capacity of financing easy loans.
  3. 3. Once the applied loans are approved, it becomes relatively easy to buy the vehicle and speeds up the process.
  4. 4. The process is formed so that the desired vehicle is kept as collateral/security, and the loan is sanctioned by this.
  5. 5. This allows the buyers to consider opting for a personal loan and purchase their dream bike.
  6. 6. However, the interest rate in the case of a personal loan is generally higher than that of a two-wheeler loan.

Looking to avail a Two-wheeler Loan? Read on:

Hassle-free loan. Yes, you read it right. The entire process of opting for a two-wheeler loan is very smooth and not cumbersome. One can easily sit and avail a loan from the comfort of their homes! Once you have taken a call to avail of a loan, the first step is to check online for agencies providing loans and compare their interest rates. There are online EMI calculators available wherein you can determine your EMI amounts- it is available for free of cost.

  1. 1. One of the additional factors is that we can avail two-wheeler loan tax exemption.
  2. 2. There is a clause that needs to be met, and for this, you would have to seek consultation from your financial institutions – i.e., Banks/NBFCs to figure out you could be meeting the eligibility criteria for claiming a two-wheeler loan tax exemption.
  3. 3. The Income Tax Act, India allows the tax-payers to declare the two-wheeler as a business asset.
  4. 4. By making this declaration, the interest paid over the principal amount can be availed as an exemption.
  5. 5. This provision is laid down under Section 80C of the IT Act and has proved beneficial as it allows tax savings by availing tax charges on two-wheeler loan tax exemption with as much as Rs 1.5 lakh per financial year.

This provision supports self-employed individuals by allowing them to claim benefits based on their business portfolio. It is to be duly noted that the two-wheeler loan tax savings can be utilized only on the interest component and not on the principal repayment. For that, it is mandatory to use the vehicle for business purposes. When we register the vehicle, it is compulsory to make the registration under the business entity name or the principal business owner to have tax savings.


Let us look at certain tax advantages that we can benefit from while opting for a two-wheeler on loan for business purposes:

Business Expense Interests

When you are a business owner who has a loan for a Two-wheeler vehicle, you can be eligible to claim the interest cost (tax charge on a two-wheeler loan) incurred as a business expense. This interest cost is tax-deductible.

Transportation Costs

As a two-wheeler vehicle incurs a regular cost in the form of fuel and maintenance – we can claim deductions for the same as transportation costs when they are incurred under the head of business expenses.

Depreciation Costs

You are eligible to claim a deduction of the maintenance cost of the two-wheeler.


When it comes to availing tax-exemption, you need to keep the below points in check:

  1. 1. The authenticity of a Two-Wheeler Loan exemption claim is at the mercy of the assessing IT officer. The officer is vested with veto power to take the final call.
  2. 2. ITR 4 is required to be duly filled by the business owner in compliance with the act.
  3. 3. Interest certificates are mandatory to be included while making the application (that were provided while granting loan by institutions)
  4. 4. All crucial documents such as invoices, receipts, and other important documents are to be kept handy.

Are there any alternate options to avail tax exemptions on two-wheelers?

  1. 1. Tax deductions on bikes that are utilized for commercial assignments like rent can be availed as most of the agencies do provide this service.
  2. 2. Nowadays, since the Food delivery business is growing tenfold in India, the agents hired by these businesses are trying to claim tax exemptions on the interest paid for their bike loans.

In short, we can understand that in India, the Income Tax law classifies two-wheeler loans undertaken by people as a luxury; hence these tax charges on two-wheeler loans are savings.


Essential Points to Consider while applying for Two-Wheeler Loans:

  1. 1. In the lending marketplace, several lenders offer loans up to 90% to 100% of the cost of the vehicle.
  2. 2. Normally, two-wheeler loans do not require us to provide a guarantor. The vehicle that we are taking the loan for acts as the collateral.
  3. 3. The coverage of the two-wheeler loan amount comprises of the following – (the on-road price of the vehicle) the cost of purchasing two-wheeler insurance, registration, and other miscellaneous accessories.
  4. 4. There are no stringent income limits to apply for loans so the eligibility is quite relaxed.
  5. 5. Repayment options are very secure, allowing options to pay off by way of monthly EMIs.
  6. 6. Hassle-free and time savings application as documentation is minimal.
  7. 7. Tax on two-wheeler loans can be easily claimed – smoothly as most of the time there are partnerships between two-wheeler dealerships and lenders. Dealers usually recommend lenders, so you can choose to go with that as well or have the expert opinion of your preferred lender.

Tax charges on two-wheelers - Interest rate cost:

Here are a few factors that play a massive role in determining the interest rate of the loan:

  1. 1. Income level and Employment status of the Applicant – Several lenders offer varied interest rates based on the monthly income levels and the job standing of the borrower. Since the security is high in the case of salaried employees, they are offered considerably lower interest rates as compared to self-employed individuals.
  2. 2.Long standing history and the credit score of the borrower – Creditworthiness is a very crucial factor for any kind of loan, globally. Preference is given to borrowers with high credit scores. The higher your credit score is, the better your chances of a loan being granted are, and the lower your interest rates will be.
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