Buying a car is still a dream for many in India. Most people who buy a car usually put down a small amount as a down payment and rely on car loans for the rest. Once they have bought the car, the amount is paid back to the bank in installments. Before we apply for a loan from a bank, we often check interest rates and choose a bank that offers you the lowest interest rates. Here we have a video of a CA explaining how to get a 3 percent car loan with the tax laws in India.
The video was uploaded to their YouTube channel by Taxation featuring CA Sahil Jain. In this video, Sahil Jain explains factors to consider before taking out a car loan. The first step is to check the expenses. When a person has multiple expenses and cannot cover all of their expenses with their savings, they must either avoid those expenses or take out a loan to cover them. He then has to decide which costs he wants to cover by taking out a loan. For that he has to go to the next step. The second step is to inquire about loan interest rates. For any expenses he has shortlisted, he should contact banks and financial institutions to see who offers the lowest rates for very high expenses.
After you have inquired about the lending rates, let’s move on to the third step, which is to calculate the actual lending rates. This is where tax laws come into play. For any expenses that the person has shortlisted, there are some expenses such as education where the government has declared that the amount of interest repaid is tax deductible under Section 80E. The amount of interest paid during the financial year can be deducted from taxable income. This actually lowers the actual interest rate on the loan.
When it comes to cars, Sahil also uses electric cars as an example. If an individual receives a car loan at 7 per cent from an institution, they can deduct interest of up to Rs 1.5 lakh in a financial year from taxable income under Section 80EEB. That would lower the interest rate on the car loan by 40 percent and the mortgage interest rate would be 2.8 percent. After considering the effective loan rates for all expenses, the person should choose the expense where the interest rate is the lowest. This is the fourth step to consider when looking for loans. If you are planning to take out a loan on an ICE vehicle and want to use it for business, under 36(1)(III) any interest you have paid on an ICE vehicle is fully tax deductible without limit. Sahil also explains another method where the person can actually borrow money from a close family member who has an FD in a bank. Instead of putting the amount in a bank as FD, the person can borrow the money from the family and pay back with interest. That way, he doesn’t have to pay an excess interest rate to the bank, which saves again.