Tax exemptions on Two-wheeler loans in India

India is the biggest market for two-wheelers all over the world. Traveling through bikes is the easiest way to zip through city traffic. They are extremely fuel-efficient  It is a highly affordable mode of transport for a middle and lower section of society. Despite being affordable, everyone may not have the disposable cash to pay upfront for a two-wheeler. At that time, Two-wheeler loans make it easier to fulfill the dream of cruising on the road.

If you have purchased two-wheeler loans for commercial purposes, then you can also claim tax benefits on two-wheeler loans in India.  You are required to declare the vehicle as a business asset, the interest paid towards the loan can be used as a deduction under Section 80 C of the Income Tax Act subject to a maximum of Rs 1.5 lakh in a financial year.

Do keep in mind that the bike loan tax exemption is available only on the interest component and not on the principal repayment. Also, as mentioned, the vehicle should be used for business purposes and will have to be registered either in the name of the business or the primary business owner/freelancer to avail of the tax exemption.

List of expenses eligible for tax exemptions

As per the IT law, income tax redemption on two-wheeler loans is available for the following three expenses:

Interest: The interest amount incurred by the business owner on availing of the vehicle loan can be claimed as a business expense.

Depreciation cost: Part of the expenses incurred for maintaining the bike can be claimed as a deduction under depreciation cost.

Transportation cost: Fuel and maintenance expenses can also be claimed as a business expense.

Some special provisions for electric scooters

  • There are some special benefits available for loans taken to buy an electric two-wheeler vehicle. The benefits are available for both cars and bikes. These exemptions are the government's way to increase the electric vehicle sale in India and to decrease the pollution level.
  • An electric vehicle is powered solely by an electric motor whose traction energy is produced by the traction battery installed inside the vehicle. It has an electric regenerative braking system, which converts the vehicle’s kinetic energy to electrical energy when brakes are applied.
  • The income tax benefit is available under Section 80EEB if the following conditions are fulfilled:
  • The deduction is available only to individuals. Any partnership firm, HUF, company, etc., or any other taxpayer category cannot claim benefits under this section.
  • Deduction of interest payments up to Rs. 1,50,000 are available under this section.
  • The loan is to be taken from a financial institution or an NBFC for buying the electric vehicle.
  • The loan must be sanctioned between a period starting from 1st April 2019 to 31st March 2023.
  • An individual may use it for business purposes or personal use to claim benefits on the loan taken to buy an electric two-wheeler. If the owner wants to claim it as a business expense, then the rules explained above need to be followed.
  • The individual taxpayer must obtain the interest paid certificate and keep documents like tax invoices and loan documents handy when filing returns.
  • Though there are no tax-free bike loans, benefits under Section 80EEB can lower your tax burden and reduce your overall borrowing cost, which can come as a huge relief.