Ways to Obtain Tax Advantages When Purchasing a New Car
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Ways to Obtain Tax Advantages When Purchasing a New Car

Getting car insurance for your new car is beneficial and mandatory. You cannot drive a car in India without a valid four-wheeler insurance policy. A car insurance plan covers the cost of damages to the vehicle due to accidents, natural disasters and more. You might be wondering how much does a car insurance cost?

The premium on car insurance depends on various factors, like the type of policy purchased,  the sum insured, add-ons (if included), location of the vehicle, the make and model of the vehicle, Insured Declared Value (IDV), etc. The role of IDV in insurance premium is crucial as higher the IDV of a four-wheeler, the higher the insurance premium.

All the aspects may be intimidating, but are you aware that Income Tax allows certain tax benefits on new car insurance premiums? Let’s learn about them in detail.

Tax Benefits on Car Insurance

Below is a list of when you can and cannot claim car insurance tax benefits.

If You Use Four-Wheeler For Personal Use

Car insurance is not a popular choice for tax deductions for individuals who do not use a four-wheeler for business purposes. If you use a four-wheeler for personal use, you can not claim tax benefits on paying the 4-wheeler car insurance premium.

Even if the employer provides the car, you cannot claim tax benefits on four-wheeler insurance if you use it for personal use.

 If You Use Four-Wheeler For Business Use

A four-wheeler provided by an employer for business use or  you use your car solely for conducting business activities, you can qualify for tax benefits on car insurance. Details related to bills, diving records, distance covered, etc., must be provided to claim tax benefits. Additionally, the employer must issue a certificate that confirms that the four-wheeler is being used for business use only.

If You Use Four-Wheeler For Business and Personal Use

You can claim tax benefits if you use the four-wheeler for business and personal use. In this case, the tax deductibles are either partially or fully available, based on the usage, calculated on a pro-rata basis.

If You Use Four-Wheeler as a Self-Employed Professional

The rules of tax benefits on four-wheeler insurance are the same for self-employed professionals as it is for salaried employees. As long as your four-wheeler is used for commercial or business uses, you can claim a tax benefit on a car insurance premium.

How to Get Car Insurance Tax Deduction

Maintaining proper books of accounts is essential to claim your car insurance tax deduction. By filing tax returns, you can get a refund on four-wheeler insurance premiums. Below are some basic steps to complete the tax filing process online.

 Audit Report

If the turnover of your business is more than ₹ 1 crore, it is almost necessary to get an audit report for your accounts.

Tax Filing

To complete the filing process, you can take the help of a professional. The tax filing method involves submitting an invoice of the paid car insurance premium or attaching the car insurance policy with other required documents for tax exemption.


After your documents are verified, the Income Tax Department will release your refund amount. Depending on your tax deducted at source calculation, the amount will be refunded, or you will need to pay additional tax.

What Are the Documents Required to Get Tax Exemption on Car Insurance

  • Details of your four-wheeler insurance policy.
  • Documents related to servicing and maintenance.
  • Original invoice of your four-wheeler.
  • Four-wheeler registration fee.
  • Proof of fuel expenses.

To Wrap It Up

Let’s recap! You can claim tax benefits if you use the car for business-related work.

Remember that you cannot claim tax benefits on car insurance if you use the car for personal use. To make the most out of the tax benefits of a new car, make sure you understand the income tax rules.

Frequently Asked Questions

Can we claim a TDS refund for car purchase?

No, you cannot claim TDS on a car purchase. TDS, or Tax Deducted at Source, is only applicable on some transactions, such as rent, salary, interest, and more, but not when you purchase a car.

What is The Maximum Deduction Amount I Can Claim on a Car Loan

According to section 80C of the Income Tax Act, you can claim the maximum deduction amount of  ₹1.5 lakhs on a car loan. This tax deduction is only allowed if you are self-employed or business owners.