A two-wheeler loan helps make bike ownership more accessible by spreading the cost into manageable EMIs. However, one common question is whether you can claim tax benefits on a two-wheeler loan in India.
Unlike home loans or education loans, which offer direct tax deductions, two-wheeler loans generally do not provide tax exemptions. However, in specific cases, you may be eligible for deductions on the interest paid. Understanding these conditions can help you make informed financial decisions.
Can You Claim Tax Benefits on a Two-wheeler Loan?
If you have taken a two-wheeler loan for personal use, you cannot claim tax exemptions under the Income Tax Act, 1961. There are no specific provisions that allow deductions for the principal or interest paid on such loans.
However, if the two-wheeler is used for business or professional purposes, the interest component of the EMI can be considered a business expense. This can reduce your taxable income, ultimately lowering the tax payable.
Tax Benefits for Business Owners and Self-employed Individuals
Self-employed professionals, business owners, and freelancers can claim tax deductions on the interest paid under Section 37(1) of the Income Tax Act.
The vehicle must be used exclusively for business activities, and the following conditions apply:
- The two-wheeler should be registered in the name of the business or professional entity
- The loan must be taken for business purposes, and interest payments should be documented
- You must maintain proper financial records to support your tax claim
Depreciation Benefit
In addition to interest deductions, depreciation on the vehicle can also be claimed as an expense. As per the current tax laws, the depreciation rate for two-wheelers is 15% per year under the Income Tax Act. If the vehicle is used for more than 180 days in a financial year, the full depreciation rate applies; otherwise, only 7.5% can be claimed.
For instance, if you purchase a bike worth ₹1,50,000 for business use, you can claim ₹22,500 (15%) as depreciation in the first year, reducing your taxable income
GST Input Credit
If your business is registered under GST, you may be eligible for an Input Tax Credit (ITC) on the GST paid during the purchase of the two-wheeler. However, this is applicable only if the vehicle is used directly for business operations, such as logistics, deliveries, or client visits.
Can Salaried Employees Claim Any Tax Benefit?
For salaried individuals, there are no direct tax exemptions on two-wheeler loans. Even if you use the vehicle for commuting to work, the tax laws do not provide relief on the loan’s principal or interest.
However, some employers offer a conveyance allowance to cover daily travel expenses. Under Section 10(14) of the Income Tax Act, a conveyance allowance of up to ₹1,600 per month (₹19,200 per year) is exempt from tax. This allowance is a fixed amount and is not linked to your loan repayments.
How to Reduce Your Two-wheeler Loan Burden
Even though tax benefits are limited, you can take steps to make your loan more affordable:
- Use a Two-wheeler Loan Calculator
A two-wheeler loan calculator helps you estimate your EMI and total interest cost, making it easier to choose a suitable loan tenure
- Compare Lenders Before Applying
You can explore a two-wheeler loan from lenders on Bajaj Markets, a financial marketplace that connects borrowers with multiple loan options
- Make a Higher Down Payment
Paying a larger upfront amount reduces the loan principal, leading to lower EMIs
- Choose a Shorter Loan Tenure
While shorter tenures result in higher EMIs, they help reduce overall interest costs
- Prepay When Possible
If you receive a bonus or unexpected income, consider making a part-prepayment to lower your outstanding balance
Final Thoughts
Two-wheeler loans do not offer direct tax exemptions for personal use. However, business owners and self-employed individuals can claim tax deductions on interest payments and depreciation if the vehicle is used for business purposes.
Salaried individuals can explore conveyance allowances provided by their employers to cover commuting costs. To optimise your loan repayment, use a two-wheeler loan calculator and compare various loan options to find the most cost-effective solution.
Also Read: The Complete Checklist for Getting a Business Loan with EIN Only
