Income Tax on Sale and Purchase of Motor Vehicle in India

India is a country with the third-largest road network in the world and today there are more than 300 million vehicles. According to Statista, travelling by road is considered a preferred choice in India with over 60 percent of the population using personal or shared vehicles for commuting from one place to another. Hence, it becomes crucial for taxpayers to understand the tax implications on the sale and purchase of the motor vehicle. This article will help you understand the various aspects related to the sale/purchase of motor vehicles.

What do you mean by Motor Vehicle?

With respect to calculating the tax on sale and purchase of a motor vehicle, Motor Vehicle includes cars, buses, motorcycles, off-road vehicles, light and regular trucks.

Tax on Sale of Vehicle

If the motor vehicle is being used for personal purpose then it will not attract any tax on the sale of the vehicle as it is not considered a capital asset. However, if the motor vehicle is used for business purpose then it is considered as a capital asset and hence long term or short-term capital gains tax will be applicable.

Tax on Purchase of Vehicle

As per the finance bill 2016, when a motor vehicle is purchased the seller is required to deduct TCS. Under section 206(1F) a seller has to deduct TCS @1% on the sale of the motor vehicle that is above INR 10,00,000. It is to be noted that this tax provision will also be applicable if someone buys parts of a vehicle for INR 2,00,000 or more.

Now, as of October 1, 2020, if the buyer is a dealer i.e. B2B then TCS is required to be collected u/s 206C (1H). If the buyer is an end customer i.e. B2C then TCS is must be collected u/s 206C (1F) and section 206C(1H) may apply when the consideration received for the sale of the motor vehicle is less than INR10 lakhs but the aggregate value of which exceeds INR 50 lakhs.

Under Section 206C(1H) as of October 1, 2020 seller is required to collect TCS@ 0.01% on receipt of a sum above INR 50,00,000 against the sale of goods. It is also important to note that because of COVID 19, the rate of TCS is 0.075% (a concession of 0.025% is given) till March 2021.

Measures taken by the Government to promote the sale of electric vehicle

In order to promote the sale of electric vehicles, a new section 80EEB was introduced. Under this section as of April 1, 2020, an additional deduction of INR 1,50,000 can be claimed on the interest paid on the loan taken for the purchase of an electric vehicle.

GST on Motor Vehicle

On Motor vehicles, GST is charged ranging from 12% to 28%. In addition to GST, composition cess is also levied ranging from 1% to 22%. These rates are charged based on whether the car is petrol, diesel or electric.

FAQs

If the motor vehilce is sold for INR 10,00,000, will TCS be applicable?

No, according to the provision, TCS will be applicable if the value of the vehilce is exceeding INR 10,00,000.

Is the TCS charged in Ex-showroom price or on-road price?

TCS @ 1% is charged on the ex-showroom price i.e. on sales consideration of the vehicle.

Is the limit of INR 10,00,000 inclusive of tax?

Yes, the limit INR 10,00,000 is inclusive of VAT i.e. Sales Consideration.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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