Using a Two-Wheeler Loan for Business Purposes: A Comprehensive Guide

Using a Two-Wheeler Loan for Business Purpose: A Comprehensive Guide

Loans by Team Drivio | 14 Jun 2024

Over the decades, two-wheelers have gained incredible popularity both for personal and business commuting. Motorcycles and scooters form the lifeline of transportation in cities as well as suburban areas. While you already have several reasons to purchase a two-wheeler through bank financing, do you know that such a loan can serve your business purposes too?

Well, you might only be thinking that applying for a two-wheeler loan can help you ease up your finances. However, if you have been using your motorcycle for business purposes, you can avail some additional loan benefits too.

In this article, we have discussed how to use a two-wheeler loan for business purposes.

How can you obtain a two-wheeler loan?

With online loan process becoming popular, obtaining a two-wheeler loan is possible in minutes. The paperless process works faster, although you can reach out to your bank or NBFC personally. Different credit agencies and lenders offer motorcycle loans and you can get them at competitive loan interest rates. Once you compare these rates, you can determine your EMI using the online calculator. 

For loan eligibility, reputed banks and NBFCs would consider your credit score, address, income proof, age, demographics, and some other factors. Besides, you might be eligible to claim tax exemption on your two-wheeler loan. Before you apply for the financial privilege, talk to your lender regarding these benefits.

Using your two-wheeler for business purposes

The Income Tax Act of India states that owners might declare their motorcycle or scooter to be a business asset. So, you can file an exemption for the interest that you pay for the loan. Under Section 80C, you are eligible to file a maximum exemption of INR 1.5 lakh each financial year. If you are a self-employed person, you can claim these benefits for your business. Remember, the exemption is not applicable to the principal repayment, it is valid only on the interest component. Read the loan repayment terms at the outset before applying for it.

Moreover, you should be using the motorcycle solely for business purposes. Also, you need to register the vehicle under your business name, or the business owner’s. This will make you eligible for tax deduction benefits.

When you consider business benefits, you should consider these three tax advantages.

Interest as business expense

You may be a freelancer or a business owner who needs the motorcycle only for professional purposes. The interest you pay on the loan for acquiring the two-wheeler is eligible for tax exemption. So, if you take a loan of 2 lakhs and pay an interest of 15% a year, your get a tax exemption on INR 30,000.

Transportation cost

If you obtain the two-wheeler loan and use the motorcycle for business purposes, you have the right to claim deductions on transportation cost. This includes the maintenance expenses and fuel costs of your motorcycle as well. The reason is, you are using the bike for your business purposes

Depreciation cost

You can claim a part of the expense necessary to maintain your two-wheeler as its depreciation cost. Besides, the vehicle would depreciate over time. You can also get tax benefits on this depreciated value.

In order to benefit under this category, you need to consider the following aspects:

  • The assessing officer of the income tax department reserves the veto power to determine whether your claims for getting exemption on the two-wheeler loan are authentic.
  • As a business owner, you need to file ITR 4.
  • You cannot include interest certificates that banks and NBFCs issue when they approve the loan.
  • You need to show your invoices, receipts, and other prime documents when you apply for the claims.

Are there additional provisions for electric motorcycles?

Electric vehicles are gaining a rapid popularity among Indian customers. The government has come up with norms supporting the purchase of these motorcycles and scooters in an effort to reduce the carbon footprint in the environment. Given that electric vehicles are the future, it makes sense to acquire them to get tax exemptions. Some benefits are applicable on electric cars as well as two-wheelers.

According to Section 80EEB of the Income Tax Act of India, electric motorcycle owners can get tax benefits under the following conditions.

  • The benefits would be available for both personal and business use vehicles. However, if you are using the motorcycle for business use, it’s necessary to adhere to the guidelines mentioned before and furnish your loan documents.
  • If you don’t run a business and happen to be an individual taxpayer, you can get tax benefits. This implies that you cannot be a part of a partnership firm or belong to a company or HUF.
  • In order to qualify for tax benefits, it’s necessary to obtain an interest certificate from your bank or NBFC. You also need to furnish the loan details and use them when you file your income tax.
  • During each financial year, the upper cap on the tax benefits is INR 1.5 lakhs.
  • To qualify for the tax benefits, it’s crucial to obtain the loan from an NBFC for a bank.
  • To benefit under this section, you need to get the loan amount sanctioned before March 2023. 

Which businesses can benefit from tax exemptions on two-wheeler loans?

In India, the tax norms consider two-wheeler loans to be a privilege or luxury. Unless you are using the motorcycle for business purposes, you won’t be eligible for the tax exemptions.

Regardless of the business you are in, you can benefit from the tax deductions if you are able to prove the involvement of the motorcycle in your business. Compared to other loans, two-wheeler loans are available at relatively lower rates of interest.

  • If you run an agency providing bike rental services, you have the privilege of claiming tax deductions. This is because, you are using the bikes for rent, which is a commercial activity.
  • Again, if you are in the food delivery sector, your agents have the right to claim tax exemptions. In case they obtain a two-wheeler loan to purchase their motorcycles, they can get tax benefits on the interest.
  • Likewise, the same norms apply to eCommerce businesses and their delivery partners. Whenever a person acquires a bike or scooter through a two-wheeler loan, he or she reserves the right to claim tax deductions.

Considering the tax benefits that the government of India has rolled out on two-wheeler loans, you should capitalize on the same. Make sure to have proper documentation in place with your bank or NBFC to qualify for these privileges. Based on your loan requirements, you can reach out to the leading banks and other lenders.