Majority of people living in India use two-wheelers and buying a car is still a dream for many. Many people who have a good budget go for brand new cars while others rely on used car platforms. In any case, most of them buy the car by making a small amount as down payment and then rely on car loans for the rest. After buying the car, the loan amount is paid back to the bank in installments. Before applying for a bank loan, we often check for interest rates and opt for a bank that offers us the lowest interest rates. However, even the cheapest car loans have interest rates close to 10%. Don’t lose hope though. There are ways to bring down car loan interest rates to as little as 3 %. Here we have a video where a CA explains how one can get a car loan at 3 percent using the taxation laws in India.
The video has been uploaded by Taxation with CA Sahil Jain on their YouTube channel. Sahil in this video explains factors one should consider before taking a car loan. First step is to check expenses. If a person has multiple expenses and he cannot meet all his expenses using his savings, he will either have to avoid that expense or get a loan to fulfill it. He will also have to decide which expense he wants to meet by taking a loan. To get a clear idea, he has to move to the next step.
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In the second step, the applicant should enquire about loan rates for all the expenses he has shortlisted. A bank or financial institution will give him a fair idea about the interest rates and the applicant can compare which bank offers the lowest interest rate for every expense. Then we move to the third step. This step is for computing effective loan rates. This is where the taxation laws come into the scene. For all the expenses that the person has shortlisted, there are some expenses like education where the government has said that the interest amount paid back is tax deductible under section 80E.
The interest amount paid during the financial year is allowable as a deduction from taxable income. This actually brings down the actual interest rate of the loan. Sahil also explains another scenario where a customer buys an electric car. If a person is getting a car loan at 7 percent from an institution, under section 80EEB, he or she can deduct interest of up to Rs 1.5 lakh in a financial year from taxable income. That would bring down the interest rate of the car loan by 40 percent and the effect loan rate would be 2.8 percent.
After considering the effective loan rates on all the expenses, the person should go for the expense where the interest rate is the lowest. This is the fourth step one should consider while looking for loans. If you are planning to take loan for an ICE vehicle and want to use it for business, then under 36 (1) (III) all the interest amount that you have been paying for vehicle with no limit is completely tax deductible. Sahil also mentions that a person can also borrow money from one of the close family member who has an FD in a bank. Instead of putting the amount as FD in a bank, the person can borrow the money and pay back with interest. In this way, he will not have to pay any excess interest rate to the bank which is again saving.
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