Tax Treatment of Cars Purchased for Business in India (2025)

Understanding Income Tax & GST Implications

Purchasing a car for business use comes with various tax implications under Income Tax Act and GST Act. While depreciation and running costs are deductible under income tax, GST Input Tax Credit (ITC) is restricted in most cases. Let’s explore the detailed tax treatment.

1. Car Purchase: Capitalized, Not Expensed

Income Tax Act: Car purchase is not treated as an expense. Instead, it is capitalized and depreciation is claimed annually.
GST Act: No ITC is allowed (blocked under Sec 17(5) of CGST Act) unless used for resale, passenger transport, or driving schools.

2. Depreciation on Car

Income Tax Act: Depreciation can be claimed as per IT rules (15% for regular cars, 30% for taxis).
GST Act: Not eligible for ITC.

3. Repair & Maintenance Expenses

Income Tax Act: Deductible as a business expense if used for business purposes.
GST Act: ITC not available, except for transport, resale, or driving schools.

4. Insurance Premium

Income Tax Act: Allowed as a deductible business expense.
GST Act: ITC not allowed, except for specific businesses.

5. Fuel & Running Costs

Income Tax Act: Fully deductible as business expenditure.
GST Act: ITC not available, except for transport businesses.

6. Resale of Car

Income Tax Act: Treated as capital gain, and tax is applicable on the profit earned from resale.
GST Act: GST applicable if the seller is registered under GST.

7. Special Cases: When ITC is Allowed on Car Purchase?

GST ITC is available only in the following cases: ✅ Car used for resale ✅ Passenger transport businesses (e.g., taxis, travel agencies) ✅ Driver training schools ✅ Vehicles with seating capacity > 13 passengers

For all other businesses, ITC is blocked under Section 17(5) of CGST Act.

Learn about the tax treatment of business car purchases in India under Income Tax & GST Act (2025). Understand depreciation, ITC eligibility, and deductions.

Frequently Asked Questions (FAQs)

1. Can I claim GST Input Tax Credit (ITC) on a car purchased for my business?

ITC is not allowed unless the car is used for resale, transport services, driver training, or has seating >13 passengers.

2. Is the cost of car purchase deductible under income tax?

No, the purchase cost is not directly deductible. It is capitalized, and depreciation is claimed annually.

3. Can I deduct fuel and maintenance costs for my business car?

Yes, fuel, repairs, and maintenance are deductible under Income Tax Act but are not eligible for GST ITC (except for transport businesses).

4. What is the depreciation rate for cars under income tax?

Regular cars: 15%
Taxis used for commercial purposes: 30%

5. Do I have to pay GST when I sell my business car?

Yes, GST applies if you are registered under GST and selling the car as part of your business assets.

Conclusion

When buying a car for business, it’s important to understand tax implications under Income Tax Act and GST Act. While depreciation and running costs are tax-deductible, GST ITC is blocked in most cases. Always consult a tax professional before making a purchase to maximize benefits.

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