The tax season is approaching and it’s time to get ready to avail tax exemptions on investments that you make. Going through various tax exemptions will help you get a fair idea of whether or not you need to take any additional steps to avail tax benefits. Apart from life insurance and health insurance policies, you can also avail tax benefits on car insurance. However, there are certain terms and conditions which you need to be aware of to avail tax benefits on car insurance.
Tax benefits on car insurance can be claimed only if you are using the vehicle for business purposes. One cannot avail tax benefits for using the vehicle for personal use.
Given below are the scenarios under which you can avail tax benefits on car insurance in case of business usage
For business purposes: Given below are the terms and conditions under which car purchased for business purpose is eligible to receive tax exemption
The insurance premiums can be tax exempt yes only if the employer provides the car and the same is only used for business related travel. Details related to distance covered, bills, etc have to be provided to avail the benefit. Moreover, the employer also has to provide you with a certificate stating that the car is used only for business purposes.
For personal usage: using your car for personal use despite the employer providing the certificate does not qualify you to avail tax deduction
The rule related to car insurance tax benefits is similar for self employed as well as salaried professionals. Cars used for commercial purposes carry high risk and hence require insurance coverage. As long as the car is being used for business or commercial purposes, you can claim a premium amount as tax benefit.
To get tax exemption on car insurance, the below documents have to be submitted
Car insurance policy works on the principle of indemnity which means that the insurance company pays for the damages caused. The claim amount is not taxable.
For instance, If your vehicle is stolen and the insurance company offers you Rs. 7 lakh as claim amount based on the vehicle's insured declared value.
However, when you receive the claim amount, you don’t have to pay any tax for the same since it is not a profit made by you. Also, in case of vehicle theft or total loss you will not receive any compensation if you have third party insurance.
You are eligible to receive tax benefit on your car insurance premium at the time of filing returns. Given below are the few steps you need to follow to claim for tax on car premiums
In case if the turnover of your business is above 1 crore then you need to get your file audited by your CA
You can proceed with filing tax and proceed with submitting the car insurance premium copy along with the supporting documents if any
Once the income tax department verifies your documents, the tax refund process will be initiated
Not many people are aware of the tax deductions available towards car insurance premiums.
This type of car insurance provides coverage to third party life and property and does not cover the insured vehicle
This type of car insurance provides coverage to your vehicle as well as third party and property
This type of insurance provides coverage for your car’s damages and losses including events caused due to man made, natural calamities, and theft.
Yes, tax on car insurance can be claimed if the vehicle is used for business purpose
Yes, car insurance is tax deductible only if the vehicle is used for business purpose
