Buying a Car in Your Company's Name This Diwali: GST After the Rate Cut, Blocked ITC, Depreciation, 1% TCS and Double Road Tax in Gujarat

Buying a car in your company's name can save income tax through depreciation, but GST credit is blocked and Gujarat road tax doubles to 12%.

Hiteshbhai runs a pharmaceutical distribution company in Junagadh and plans to buy a Rs 20 lakh SUV on Dhanteras. The dealer has asked whether to bill it in the company's name or his own, and a friend has told him the company will get the 40% GST back as credit. He also wants to know why the RTO quote for the company is double the quote in his own name.

Car sales in Gujarat peak between Navratri and Diwali, and the GST cut of September 2025 has made cars cheaper. The name on the invoice decides the GST, the road tax, the income tax and the paperwork for years, so it is worth settling before the booking is made. Here is how it works in 2026.

Short Answer: If the car is used mainly for business and your company pays tax, buying it in the company's name lets the company deduct depreciation of 15% a year, loan interest, fuel, insurance and the driver's salary. The costs: GST on a car with up to 13 seats cannot be claimed back, Gujarat road tax doubles from 6% to 12%, and your personal use is taxed as a perquisite. A proprietor keeps the car in his own name. On a car above Rs 10 lakh, the dealer collects 1% TCS, which is adjusted in your return.

Our team works out both options before you book, and handles the depreciation, TCS credit and perquisite in your returns. Call or WhatsApp +91 82005 28355, or see the details at the end of this guide.

GST on cars after the rate cut

• Small cars at 18%: petrol cars up to 1,200 cc and diesel cars up to 1,500 cc, not longer than 4 metres.
• Bigger cars and SUVs at 40%: with no compensation cess on top, against 28% plus cess of up to 22% before 22 September 2025.
• Electric cars: 5%.
• The new slabs: see GST 2.0 rates and ITC rules.

Why the business usually cannot claim the GST

• Blocked credit: GST on motor vehicles for carrying people, with 13 seats or fewer including the driver, cannot be claimed as input tax credit.
• The exceptions: businesses that deal in such cars, run a driving school, or carry passengers as their business, such as cab and tour operators, subject to the GST rate they charge.
• Also blocked: GST on insurance, servicing and repairs of such cars, and on renting or leasing them.
• Goods vehicles are different: pickups, tempos and trucks used in the business carry full credit.
• Not wasted: the GST becomes part of the car's cost, so it is recovered through depreciation over the years.

Income tax: what the business can deduct

• Depreciation: 15% a year on the written-down value. A car put to use in the second half of the year, as a Diwali purchase is, gets half the rate, 7.5%, in the first year, and the balance carries on in later years.
• What is depreciated: the price including GST, road tax and registration. Insurance is a yearly expense instead.
• Running costs: fuel, insurance, servicing, the driver's salary and interest on the car loan, to the extent the car is used for business.
• Taxis run on hire: cars used in a business of running them on hire get 30% depreciation.
• Presumptive tax: if you declare income under the presumptive scheme, depreciation and car expenses are treated as already covered. See presumptive taxation.

Company, firm or your own name

• Private limited company: the car is the company's asset, and depreciation and running costs reduce its profit. Gujarat road tax is 12%, double the individual rate, because the owner is not an individual. A director's personal use is taxed as a perquisite.
• LLP or partnership firm: the same 12% road tax, and the tax officer can disallow a part of the costs for the partners' personal use.
• Proprietorship: it is not a separate person, so the car is registered in the owner's name at 6% road tax, and the business claims depreciation and costs for business use, less any personal share.
• Personal car: 6% road tax and no deduction, for a salaried person or a car kept only for the family.
• Keep a trip log: a simple record of business trips supports the claim in every case.

The director's perquisite

• Official and personal use: when the company owns the car and pays the running costs, the director's taxable salary includes Rs 5,000 a month for a car up to 1.6 litres or an electric car, or Rs 7,000 a month for a bigger engine, under the Income-tax Rules, 2026.
• Driver: Rs 3,000 a month more if the company provides one.
• Personal running costs paid by the director: Rs 2,000 or Rs 3,000 a month instead.
• Official use only: no perquisite, if records show the car is used only for work.
• Salary planning: the car, salary and other payments from the company work together. See how to take money out of your company legally.

TCS, cash and the car loan

• 1% TCS: dealers collect 1% of the price on a car above Rs 10 lakh. It is credited to the buyer's PAN and adjusted against tax in the return, or refunded. If a refund is held up, see why refunds get stuck.
• No cash of Rs 2 lakh or more: a dealer cannot accept Rs 2 lakh or more in cash for one car, and the penalty equals the amount. See cash transaction limits.
• Car loan: for a loan in the company's name, banks ask for its financial statements and a board resolution, and the interest is a business expense.

Selling or replacing the car later

• GST on the sale: a business selling a used car on which no credit was claimed pays GST only on the margin over its depreciated value, and nothing if there is no margin.
• Income tax: the sale price is reduced from the block of cars, and a short-term gain or loss arises only if the price is more than the block's value or the block is left empty.

Back to Hiteshbhai. His friend was wrong about the GST: it cannot be claimed, so it is added to the car's cost and recovered through depreciation. His company uses the SUV for visits to chemists and distributors across Saurashtra and pays tax, so the car is still billed in the company's name. The extra Rs 1.2 lakh of road tax and the perquisite of Rs 10,000 a month for the car and driver are weighed against depreciation of about Rs 1.7 lakh this year and Rs 3.1 lakh next year, plus fuel, insurance and the driver's salary, all deducted from company profit. The dealer is paid by bank transfer, the Rs 20,000 TCS is credited to the company's PAN, and a trip log is kept from day one.

How we help

• Company, firm or personal name: both options worked out before you book
• GST on cars, goods vehicles and used-car sales
• Depreciation, running cost claims and trip log formats
• Perquisite valuation and TDS on directors' salaries
• TCS credit and refunds in your return
• Company and firm returns, audits and advance tax

Gadhia Associate has been in practice since 2007 and has handled work for over 7,000 clients, with a 5.0 Google rating from more than 100 reviews. Business owners from Junagadh, Rajkot, Porbandar, Veraval and Keshod come to our Junagadh office, where same-day appointments are available. Work for clients elsewhere is handled online.

Booking a car this Dhanteras? Decide whose name it goes in before the invoice is made. Call or WhatsApp +91 82005 28355, or message us on WhatsApp. The first consultation is free.

Frequently asked questions

Can a company claim GST input tax credit on a car?

Not on a car with 13 seats or fewer including the driver, unless it deals in cars, runs a driving school or carries passengers as its business.

What is the depreciation rate on a car used in business?

15% a year on the written-down value, and half of that in the first year if the car is used for less than 180 days in that year.

Is TCS charged when buying a car?

Yes. The dealer collects 1% on a car priced above Rs 10 lakh, and the buyer adjusts it against tax in the return.

Is road tax higher for a car in a company's name in Gujarat?

Yes. It is 12% of the cost, double the 6% charged when the owner is an individual.

Is a company car taxable for the director?

Yes, if it is also used personally: Rs 5,000 or Rs 7,000 a month depending on the engine, plus Rs 3,000 for a driver, when the company pays the running costs.

Can I pay cash for a new car?

Only below Rs 2 lakh. At Rs 2 lakh or more, the dealer faces a penalty equal to the cash received.

Position as of 23 October 2026. GST rates are as notified from 22 September 2025, income tax is under the Income-tax Act, 2025 and the Income-tax Rules, 2026, and road tax is under the Gujarat Motor Vehicles Tax Act. RTO charges and rates can change, so check your own case before you book.