Did you claim a minimum Rs 10,000 income tax refund for your car bought in FY26? Here's how to claim

You might not even realise but you might be losing out on your own money if you recently purchased a car. Every buyer pays full attention when it comes to securing the loan for their dream car, but what many are unaware of is that dealers collect a 1% TCS on the sale if the vehicle’s cost is above a specified limit.

And this money can be claimed as refund or adjusted against your total tax liability when filing the income tax return (ITR) for the relevant year.

Just how your employer deducts TDS from your salary (if you have a tax liability or you are employed as a consultant), car dealers are required to deduct a 1% TCS (tax collected at source) when the ex-showroom price of the vehicle goes over Rs 10,00,000. Most buyers would unknowingly include it as payment towards the car, but TCS is an additional amount which the seller of specified goods needs to collect at the time of sale and remit to the government account.

According to the income tax rules, car dealers are required to deduct 1% TCS if the ex-showroom value of the car exceeds Rs 10 lakh. However, do not confuse your total car cost with ex-showroom price, which is the base retail cost excluding any taxes, accessory charges etc.

Are you losing out on a Rs 10,000 minimum tax refund?

If you don’t have any income tax liability, then this TCS collected on the car purchase can be claimed as tax refund while filing the ITR. If you have any tax liability, then this TCS amount can be adjusted againstit, and you will need to pay the net amount.

In most cases, buyers view TCS as part of the vehicle purchase cost rather than as a tax credit available against their PAN, explains Deepashree Shetty, Partner, Global Mobility Services, Tax & Regulatory Advisory at BDO India.

TCS should not be misconstrued as a permanent outgo. Instead, it is a tax credit against the buyer’s PAN, which can be claimed when filing the tax return for the financial year in which the car was bought.

Since the amount is collected by the dealer and not paid directly through the income-tax return process, many taxpayers overlook it while preparing their ITR, Shetty adds.

TCS on car purchase: Does it apply to your vehicle?

“When purchasing a vehicle costing over Rs 10 lakh for personal or business use, please be aware that Tax Collected at Source (TCS) applies under the Income-tax Act. While this is not an additional tax, it serves as a credit against your total tax liability,” Suneel Dasari, Founder and CEO, EZTax, tells ET Wealth Online.

Don’t think that TCS would apply only luxury items or high-end cars. Section 206C(1F) of the Income Tax Act, 1961 says that "every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding Rs 10 lakh, shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 1% of the sale consideration as income tax."

So, if you purchased any mid-size SUV, premium MPV, electric vehicle, full-size SUV or any other motor vehicle, the value of which exceeds Rs 10 lakh, chances are that your dealer would have deducted 1% TCS, and you might not have paid attention to it.

Source: Economic Times