Team AckoJan 31, 2024
Most people hire professionals for income tax filing as they have more knowledge about tax exemption and the overall process. But sometimes, you may want to do the tax filing by yourself. In this case, you would look for more benefits to avail. You can add car insurance premiums to the list if you use the car for a specific purpose. In this article, we will explore all insights related to car insurance and tax exemptions.
People usually know that a part of their health insurance premium is tax exempted. But did you know that car insurance deduction under income tax is also allowed? Of course, this comes with pre-defined conditions. But it is possible to get a tax benefit on motor insurance if you use the car(s) for business purposes. Here is a list of when you can or cannot claim a tax benefit.
Motor insurance is not a well-known choice for tax saving for people who don't use a car for business purposes. If you use a car for personal requirements, then you cannot avail of tax benefits on the payment of the car insurance premium. This is true even if the car is provided to you by the employer.
It is allowed to get tax benefits on things related to a car used for business purposes. Here is how the conditions are set.
Only business - All the expenses related to a car provided by the employer for business purposes get a tax benefit, provided the bills, driving records, date of use, kilometres covered, etc., are ready for tax calculations. The employer must also issue a certificate confirming the car is used for business-related purposes only. It cannot be used for personal transport.
Business and personal use - Under this condition, the car is owned by an employer. It can be used for business and personal needs. Here the tax exemption is calculated on the cubic capacity of the car in addition to the presence of a paid driver.
As mentioned earlier, the car insurance premium is tax-deductible when it is used for business purposes.
As compared to a car used for personal needs, a car used for commercial purposes can be at a higher risk of accidents and damage. Thus the car insurance premium is also slightly higher for commercial/business cars.
In the case of self-employed people, car insurance can be tax-deductible as the car is still being used for commercial purposes. This is a benefit given to business owners as they are taking higher risks by providing the car for helping with business-related transportation.
Auto insurance works on the principle of indemnity. This means your insurer bears the loss on your behalf. You are not making a profit out of the claim amount. On the contrary, you are suffering a loss. Thus, the claim amount is non-taxable irrespective of whether the claim is a major or a minor one.
Let’s understand this better with the help of an example.
Suppose Mr. Sanjiv owns a 3-year-old Maruti Swift car. The current market price of the car is about Rs. 5 lakhs. Unfortunately, the car was stolen. Since the police were unable to find the car, they issued a non-traceable report. Finally, Mr. Sanjiv raised a theft claim. He was given a claim amount of Rs. 5 lakhs. Tax deductions were not applicable on this amount since this was the compensation of loss for the car owner and not a means to make a profit.
Note: The example is for informational purposes only, details will vary as per terms and conditions of the policy.
You can get an applicable refund on car insurance premiums by filing tax returns. Nowadays, it has become easy to complete the tax filing process online. Here are the basic steps.
Step 1: Tax audit
If your business turnover is over Rs. 1 crore, then you must get an audit report from a chartered accountant for your accounts.
Step 2: Tax filing
You can take the help of a professional to help you with the filing process. This is when you can submit an invoice of the premium paid or attach the car insurance policy along with other documents for tax exemption.
Step 3: Refund
The Income Tax department will release the applicable refund after the verification of documents.
Here is a list of documents you can submit for getting a tax exemption.
Car's original invoice
Car insurance premium receipt
Car registration fee
Fuel cost bills
Servicing and maintenance documents
Note: This list is for reference only. Please contact the relevant person to know more about income tax filing and the required documents.
Following is the list of reasons why you must consider opting for car insurance.
1. Mandatory by law - You cannot drive a car with a valid car insurance policy as this is against the law. Thus, you must pay fines when caught driving without car insurance.
2. To cover third-party losses - Even the most basic car insurance policy will provide coverage against third-party losses.
3. To cover Own Damage - Buying a Comprehensive Car Insurance Policy will allow you to claim in case your car gets damaged due to an accident, fire, natural calamity, or man-made calamity. Theft cover is also a part of this type of car insurance policy.
The premium of your car insurance policy is calculated with the help of multiple factors. Here is a quick list for reference.
Type of car insurance policy
Brand of the car
Number of car insurance add-ons
No Claim Bonus
No. Section 80C covers investments related to LIC premium, National saving certificate (NSC), Sukanya Smriddhi Yojana (SSY), Equity-linked saving scheme, PPF, etc.
Yes, online car insurance renewal is much faster as compared to the offline process. This is because your information is already available in the insurer’s database. Also, you can do this process without unnecessary paperwork at ACKO.
Completing car insurance renewal after the expiry date is not ideal as you cannot make a claim for damages or third-party liabilities during the grace period. You will have to bear all the related costs by yourself. Thus, always make sure that you renew your car insurance policy at least a week before the expiry date.
Yes, buying a car insurance policy can be considered as a business expense, provided the car is used for the sake of business only.
|Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.
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