Don’t love your Car..

We see many people keep switching cars frequently. And most of them buy them on loans. The surface judgement could be … they are blowing away their money. Five years back a 20 lakh car to 30 lakh was considered luxury. But today – with the advent of EV cars – that seems to be a mid segment. The basic logic is - Having spent so much money – is it sensible to change your car every few years? But we do hear people say – instead of paying tax – let me enjoy it by way of car depreciation.

Here is an attempt to debug this enigma of TAX BENEFITS OF OWNING A CAR. This article may give clarity on : How to buy a car - with full downpayment or avail a car loan, how long to own your car loan and above all the tax breaks you get by way of depreciation and interest paid.

When you buy a car – you often fall in love. You look into the brand, features etc and the luck it bring for you. As a result. many prefer to own their car for 7 to 12 years – if not for eternity. But does it make sense to get so attached with it… after all it is a car. Sounds detached?

Few assumptions before we proceed:

Depreciation:

It is 15% for normal ICE (Internal Combustion Engine) Car and 40% for Electric Vehicles. For a Rs.20 Lakh car, 15% in 1^st year works out to Rs.3 lakh. Some may think this entire 3 lakh gets reduced from tax. But in reality it gets deducted from your income. As a result – if you are in 30% tax bracket then you save Rs. 90,000 by way of tax. And in the next year, the depreciated cost comes to Rs.17 lakhs and 30% of it comes to 76500 and so on.

Car Loan:

Many of us have the money to buy a car. And we feel it is a loss to take a car loan since you lose out on interest paid. Hence we prefer to pay full money on downpayment. But the interest paid is allowed as an expenses.

Resale value:

Have taken a 50% resale value after 3 years, 25% resale value after 5 years.

Here is the raw data: 

Owning a normal ICE (Internal Combustion Engine) Car:

Owning an Electric (EV) Car for 5 years:

Owning an Electric (EV) Car for 3 years:

 

Conclusion:

It makes sense to buy a car on car loan

It is even more sensible to buy an EV car – since depreciation is high and government may reduce it once EV penetration picks up. So catch it before it is too late.

Above all – nothing is permanent in life. Rather than falling in love with your car and owing it for 10 years, keep swapping cars once in 3 years. You get the most benefit out of it.

 

Note: This is just a starting point on owning a (EV) car and the cost - benefits attached to it. Do your own due delligence before making any decisions.