All You Need to Know About Car Insurance Policy and Tax Exemptions
All You Need to Know About Car Insurance Policy and Tax Exemptions
![All You Need to Know About Car Insurance Policy and Tax Exemptions](/images/default-source/car-insurance/car-insurance-policy-and-tax-exemptions.jpg)
Even though we are still a fair bit away from the tax season, now is the time lot of people start to assess their tax liabilities and investments. Looking at these documents will help you determine whether you are on par with your investments or need additional help in reducing taxes. If you want to save taxes, there is an interesting avenue in the form of car insurance. Yes, you read that right. Your CAR INSURANCE policy can help you to save additional taxes. However, there are certain conditions and a few other things that ought to be aware of prior to saving taxes. Here is all that you need to know about tax exemptions on your car insurance policy.
When can you claim tax benefits on your car insurance policy
You can seek tax benefits on your car insurance premium if you use it for business purposes. Taxpayers who use their cars for personal use cannot do the same. Even for business usage, here are the two conditions that taxpayers must meet.
1. For business purposesCars used for business purposes qualify for tax exemptions as far as the following conditions are met.
- If your employer is the owner of the car, you can use it for both business and personal needs. In such cases, the tax exemption is calculated based on the engine capacity of the car.
- If your employer provides the car and it is solely used for business purposes, the insurance premiums can be used for tax exemptions. However, you must ensure that you provide the bills, dates when you have used the car, the distance travelled on those dates, the reason for the visit, bills, etc.
Also, your employer needs to provide a certificate that the car is used only for business purposes.
2. For personal useSaving taxes with the help of a motor insurance plan isn’t one of the most common ways to do so. Even more so, if you use the car for personal use, when you use the car only for personal use, you cannot claim any tax benefits, despite your employer providing you with the car.
Are the tax benefits on car insurance applicable to the self-employed?
You can use the premiums of your COMPREHENSIVE CAR INSURANCE for tax benefits as long as it is used for business purposes. Cars that are used for commercial purposes almost certainly have higher mileage and run at higher risks as well. It should not come as a surprise that the premiums are higher for cars that are used for commercial purposes or business purposes. The rules remain the same for self-employed individuals as well. As long as the car is being used for business or commercial purposes, they can claim the premium amount as tax benefits.
How can you get a tax deduction on car insurance?
You can expect a tax refund for the car insurance premium only after you have filed your income taxes. Here are the different steps that must be followed for the same.
1. If the turnover of your business is over Rs. 1 crore for a financial year, you must get your books audited by a chartered accountant. It is important to get this tax audit done.
2. You must then proceed with your tax filing. You can either do it yourself or take the help of tax consultants to do the same. While filing your income taxes, you can submit the invoice for the car insurance premium along with any other supporting documents for tax deductions.
3. Once the Income Tax department verifies your documents are and convinced with the usage of the car, they will process the refunds.
What are the documents that you must submit for tax exemption?
To get exemptions on your car insurance premium, you must submit the following set of documents.
● The original invoice for the car
● Proof of registration fee paid for the car
● Invoice for the car insurance policy
● Proof of fuel bills
● Servicing and maintenance records of the car
Are car insurance claims tax deductible?
Taxpayers might have this question, whether the claim amount that they receive from the insurance provider is tax deductible or not. The simple answer is no. Car insurance policies usually work on the principle of indemnity. In other words, your insurance provider bears the expenses for repairs or loss of the car due to the listed reasons. Since it is a loss and not a gain made by the insured, the claim amount is not taxable. For example, if someone steals your car and it cannot be recovered, the insurance company will tag it as a total loss after following the due process. If the IDV of your car is Rs. 5 lakhs, then the insurance provider will pay you the amount in case of a total loss. When you receive the Rs. 5 lakhs compensation, you need not pay any taxes on it since it is not a profit. However, you will not receive any compensation for total loss if you have opted for third party car insurance policy. Buying a comprehensive car insurance policy offers a ton of benefits.
What are the benefits of buying a comprehensive plan?
When you choose a comprehensive car insurance policy, here are all the benefits that you stand to receive.
● If there is an accident involving a third party, the policy covers all the expenses related to repairs or injuries. Essentially, you get the benefits of THIRD PARTY CAR INSURANCE.
● If your car is damaged during an accident and needs repairs, you can rely on the policy to cover these expenses. The absence of a policy would put the onus of paying for these expenses on you.
● A comprehensive plan offers coverage against natural calamities such as earthquakes, landslides, cyclones, etc. and at the same time against man-made calamities such as theft, vandalism, riots, etc.● Comprehensive plans allow you to opt for riders. Riders are additional features that you can integrate with your policy by paying a small premium. They are great additions at small premiums.
● Should an accident lead to any legal complications, the policy will offer compensation for legal fees and consultation. It is essential to have this covered since legal expenses can build over time.
● Most car insurance policies offer personal accident coverage. They are either available with the policy, or you can opt for them as an add-on. If the insured is injured or loses his/her life during an accident, the policy will compensate the loved ones.
For a more comprehensive understanding of car insurance policy, you can also refer to HDFC ERGO's Layman's Guide to Understanding Car Insurance
Conclusion
Not many people are aware that you can use car insurance premiums for tax deductions. However, this comes into the picture only when you use the car for business or commercial purposes. Above are all the details that you would need to explore this tax deduction. And should you qualify, you can reduce your tax liability by a considerable margin.
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.
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