Car purchased on loan - computing depreciation & deduction?

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Hi everyone. I'm new here and hoping to find solution to my confusion regarding depreciation and deduction on a car purchased on loan. I'm a self-employed professional and have purchased a car with loan (from HDFC Bank). I made an upfront down-payment of Rs.1,91,166/- and the rest though a 5 year auto-loan. The EMI comes to Rs.8618/- inclusive of the principal and the interest component. Till date, I have paid 34 of the total 60 installations.I use this car almost solely for my professional purposes. Correct me if I'm wrong but I think when it comes to filing Income Tax Return, I can apply for some deductions on the basis of this car purchase and the loan. My real confusion is, how is the deduction calculate. Please see the following situations I can think of:

  1. Is it like depreciation-deduction on the upfront amount I paid at purchasing time, treating it as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
  2. Or, depreciation-deduction on the entire ex-showroom amount irrespective of how much I have paid in an FY, treating it as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
  3. Or, depreciation-deduction on the IDV of the car each year as per the Insurance Policy treating the IDV as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
  4. Or, depreciation-deduction on the upfront amount I paid + Principal component of the installment, treating it as Capital Expenditure and deduction of the Interest component of the installment, treating it as Revenue Expenditure?
  5. Or, from second year of purchase onwards, adding the Principal component of all the installments in an FY, depreciation-deduction on this amount treating it as Capital Expenditure and deduction of the Interest component of the installments, treating it as Revenue Expenditure?

I hope I make sense here, because, as evident, I'm really confused. Please guide.

Replies (6)

Dear,

Since you are using your car in your profession you will be allowed following deduction from your income from profession

1) Intt paid on car loan (get loan statement from bank to bifurcate principal and interest amount)

2) Depreciation on car purchased @ 15% (on purchase value of car)

Thanks a lot for the response Sir.

1) I do have the statement which bifurcates the Principal and the Interest components in the total EMI. So am I right in guessing that the interest component shall go towards professional expenses deduction and the principal component of each EMI is irrelevant for deduction?

2) Sorry, I don't quite follow what you meant by Purchase Value of the car. Does it mean the entire ex-showroom price of Rs.9 Lakh (approximately)? Or does it mean the part value paid by me in the form of total Principal component paid by way of 12 EMIs in the Previous Year?

Deductions from payable tax can be availed only if you are self-employed or a businessman, and you declare the profit or capital gains earned from your work or business, or if you purchase a vehicle for business use. In that case, you get exemption on the interest as well as depreciation of the vehicle.

1) yes, principal amount is irrelevant for deduction.

2) Purchase Value means total price of car on road including registration and accessories.

The option 4 as suggested by your good self is correct. claim depreciation on ex showroom price and interest as revenue expenditure.

When you purchase a car on loan, depreciation and interest deductions can be claimed. Depreciation on the car is calculated annually, usually at a rate of 15% for personal vehicles under the Income Tax Act in India. However, the interest paid on the car loan is not deductible for personal vehicles. If you use the car for business purposes, both depreciation and the interest on the loan can be claimed as business expenses. Kotak Mahindra Bank offers car loans with attractive interest rates and flexible repayment options, which can aid in managing the financial burden while claiming these deductions.
 


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