Income Tax on sale & Purchase of Motor Vehicle in India

What do you mean by Motor Vehicle?

Motor Vehicle includes Cars, buses, motorcycles, off-road vehicles, light trucks and regular trucks. In India, there are more than 300 million operating vehicles. In this modern era everyone wants to be travel fast overcoming the hindrance of traffic and motor vehicles allows you to travel fast comfortably. India has 22 cars per 1000 individuals and purchase/sale of motor vehicles is normal thing now. Therefore, tax affect on purchase/sale of motor vehicles plays a very vital role in one’s life.

Tax on Sale of Motor Vehicle

• If motor vehicle is used for Business, then it is considered as capital asset and chargeable to tax as Long term capital gain or short term capital gain as the case may be.
• If motor vehicle is used for personal purpose, then it is not a capital asset and does not attract tax on sale.

Tax on Purchase of Motor Vehicle

• If motor vehicle is purchased then TCS is required to be deducted by seller. Two sections are attracted of Income-tax Act, 1961. According to section 206C (1F) of Income-tax Act, 1961 Seller is required to deduct TCS @1% on sale of motor vehicle exceeding the amount of ₹10lakhs. Also from 01/10/2020 seller is required to collect TCS@ 0.01% (0.075% due to Covid-19) on receipt of sum above Rs.50lakhs against sale of goods.
• If buyer is dealer (B2B) then TCS is required to be collected u/s 206C (1H) from 01/10/2020.
• If buyer is ultimate customer (B2C) then TCS is required to be collected u/s 206C (1F) and section 206C(1H) shall apply when consideration received for sale of motor vehicle is less than 10lakhs but aggregate value of which exceeds Rs.50lakhs.

Measures Taken by Govt. to Promote Sale of Electric Motor Vehicle

According to section 80EEB, deduction on Purchase of Electric Motor Vehicle from 1^stApril 2020, additional deduction of interest paid on loan taken for purchase of electronic motor vehicle is allowed up to an amount of Rs.1,50,000/- to an Individual. This move is taken to improve environment and reduce vehicular pollution.

GST on Motor Vehicle

GST on Motor vehicle is charged ranging from 12% to 28%. Along with GST composition cess is also levied ranging from 1% to 22%. The rates are charged depending on Petrol car, Diesel Car, Electric Cars, engine capacity, ambulance, etc.