Buy a Vehicle at Lower EMIs and Higher Depreciation

Are you planning to buy a two-wheeler or a four-wheeler? Though you might have the plan on your mind, you may not be sure when to initiate it. Good news! Diwali is around the corner, and this is a great time to make that purchase.

Can the Festival Season Be the Best for Purchase?

As we approach the mood of Diwali and Dhanteras, several manufacturers and vehicle dealers add to it with multiple attractive offers on purchase of vehicles. Brands such as Maruti, Hyundai, Nissan, Ford, and others have geared up to offer festive deals such as 0% interest rate, cash discount, exchange bonus, lower interest rate if financed through the dealer, and additional discounts for corporates.

The economic slowdown has also been one of the causes to offer discounts as these attract more consumers. The government has been supportive of boosting auto sales. 

Repo Rate Slash by RBI

The Reserve Bank of India (RBI) has announced a repo rate cut by 25 bps and reverse repo by 25 bps. New borrowers are happy about the rate cut since all banks must link the new floating rate loans to one of the external benchmarks as specified by RBI, valid from 1 October. These loans must transmit RBI’s rate cuts down to the borrowers faster.

The repo rate stands at 5.15%, and the reverse repo rate stands at 4.90% after the rate cuts. On an aggregate, RBI has slashed about 135 bps over the period from February 2019 until 4 October 2019.

These rates directly affect the interest rates on vehicle loans, similar to its effect on other loans and fixed deposits. A drop in vehicle loan interest rate implies that the monthly instalment you pay is reduced. The rate cut saves a fortune for the borrowers who apply for a vehicle loan making the total cost to own the car cheaper than before.

Also Read: Tax Incentives and Exemptions for Auto Sector Encourages ‘Make in India’

Government’s Additional Measures

The first measure the Finance Ministry announced towards boosting vehicle sales is a 15% additional depreciation for vehicles purchased until 30 September 2019. Nevertheless, vehicles bought between 1 October 2019 and 31 March 2020 will get a further depreciation of 7.5% over the existing depreciation of 15%, bringing the total depreciation value to 22.5%.

The government has also postponed the increase of one-time registration fee until June 2020. 

Further, it is also the right time to buy electric vehicles as the GST Council declared a GST rate slash to 5% on electric vehicles and its accessories such as chargers. The government encourages faster adoption of electric vehicles through its upfront incentive programme.

An additional income tax deduction of Rs.1.5 lakh is provided on the interest paid towards the vehicle loan taken to purchase electric vehicles. The tax deduction scheme is applicable only if the loan is received between 1 April 2019 to 31 March 2023. On a total, a consumer can save Rs.2.5 lakh from the new provision over the loan period.

Now, you know all the facilities and schemes you can avail if you purchase a two-wheeler or a four-wheeler during this festive season. Do not procrastinate the purchase and lose the offers. Step out for a test drive now, strike the deal, and make the most of the season’s offers!

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in

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