Hi everyone. I'm new here and hoping to find solution to my confusion regarding depreciation and deduction on a car purchased on loan. I'm a self-employed professional and have purchased a car with loan (from HDFC Bank). I made an upfront down-payment of Rs.1,91,166/- and the rest though a 5 year auto-loan. The EMI comes to Rs.8618/- inclusive of the principal and the interest component. Till date, I have paid 34 of the total 60 installations.I use this car almost solely for my professional purposes. Correct me if I'm wrong but I think when it comes to filing Income Tax Return, I can apply for some deductions on the basis of this car purchase and the loan. My real confusion is, how is the deduction calculate. Please see the following situations I can think of:
- Is it like depreciation-deduction on the upfront amount I paid at purchasing time, treating it as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
- Or, depreciation-deduction on the entire ex-showroom amount irrespective of how much I have paid in an FY, treating it as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
- Or, depreciation-deduction on the IDV of the car each year as per the Insurance Policy treating the IDV as Capital Expenditure and deduction of installment amount of Rs.8618 x 12 as Revenue Expenditure?
- Or, depreciation-deduction on the upfront amount I paid + Principal component of the installment, treating it as Capital Expenditure and deduction of the Interest component of the installment, treating it as Revenue Expenditure?
- Or, from second year of purchase onwards, adding the Principal component of all the installments in an FY, depreciation-deduction on this amount treating it as Capital Expenditure and deduction of the Interest component of the installments, treating it as Revenue Expenditure?
I hope I make sense here, because, as evident, I'm really confused. Please guide.
CAclubindia
