Interest On Loan For Car Bought For Business To Be Deducted From Taxable Income

Q: My son who is a professional wants to purchase a car during this financial year. The dealer is prepared to sell the car on loan, that is the entire cost of the car is to be repaid as loan in 12 installments at 14.5 per cent interest. My query is, whether the interest to be paid to the dealer comes under deduction from taxable income or any rebate is permissible on this. If deduction/rebate is permissible, is it in addition to the depreciation permissible.

A: If the car is being purchased for use in business, the interest on the loan should be allowable as deduction in computing the taxable income as interest on any other loan taken for purchasing any other business asset. The fact that the interest is being allowed as a business deduction cannot be a ground for disallowing permissible depreciation as per the income-tax rules.

If the car is to be used partly for business purposes and partly for personal purpose the assessing officers are generally of the view that there should be partial disallowance (to the extent the car is used for personal needs). Such a disallowance can be both for interest as well as for depreciation.

Q: I am a sleeping partner of a firm, whose accounts are tax-audited under Section 44AB, and subsequently whose return of income is required to be filed by October 31. While I do not draw any remuneration from the firm, it pays me interest on my capital. I am assessed to both income tax and wealth tax and am bound to file my personal profit-and-loss account, balance-sheet, the extract of capital account in the firm, the statement of my share of taxable wealth in the firm, and such other relevant statements with my returns. I am required to file my returns by July 31. However, as the due date for the firm is October 31, its statements are never ready before that date. Subsequently, drawing up my capital account, profit-and-loss account, balance-sheet and other statements cannot be done unless and until the firm