Understanding Income Tax Implications on Sale and Purchase of Motor Vehicles in India

Definition of Motor Vehicle Motor vehicles encompass cars, buses, motorcycles, off-road vehicles, and various types of trucks used for personal or commercial purposes. Tax on Selling a Vehicle Personal vehicles used for personal purposes are not taxed upon sale. However, vehicles used for business purposes are considered capital assets, subject to either long-term or short-term capital gains tax upon sale.

Tax on Buying a Vehicle Tax Collected at Source (TCS): Sellers must collect TCS at 1% if the vehicle's cost exceeds INR 10,00,000. This also applies to vehicle parts costing INR 2,00,000 or more. B2B vs. B2C Transactions: Since October 1, 2020, TCS rates vary based on whether the buyer is a business or an individual customer, regulated under sections 206C(1H) and 206C(1F) respectively. COVID-19 Relaxation: TCS rate temporarily reduced to 0.075% until March 2021 under section 206C(1H) for B2B transactions exceeding INR 50,00,000.

Incentives for Electric Vehicles Section 80EEB offers an additional deduction of up to INR 1,50,000 on the interest paid for loans taken to purchase electric vehicles, effective from April 1, 2020.

GST on Vehicles Rate: GST rates on vehicles range from 12% to 28%, with additional composition cess varying from 1% to 22% based on fuel type (petrol, diesel, or electric).