Don't miss this tax benefit: How car buyers can claim a minimum ₹10,000 refund

Buying a car is a major expense but many buyers don't realise they may be entitled to an income tax refund on the purchase. If the vehicle's value exceeds the prescribed limit, the dealer collects 1% TCS (tax collected at source) at the time of sale. This is not a extra charge but rather tax paid in advance.

The good news is that this amount is not lost. When you file your income tax return (ITR), the TCS reflected against your PAN can be adjusted against your total tax liability. If your tax liability is lower than the TCS already collected, you can claim the excess amount as an income tax refund.

When is TCS collected by car dealers or sellers?

Car dealers and sellers are required to deduct 1% TCS on the sale of a motor vehicle if its ex-showroom value exceeds ₹10 lakh, according to the income tax rules. This amount is collected from the buyer at the time of the transaction and deposited against the buyer's Permanent Account Number (PAN).

However, you should not confuse your total car cost with ex-showroom price, which is the base retail cost excluding any taxes, accessory charges, among other such expenses. TCS deduction on car deals applies to retail buyers and is intended to help the tax department track high-value purchases.

Hence, TCS should not be viewed as a permanent expense. It is a tax credit linked to the buyer's PAN and can be adjusted against their income tax liability while filing ITR for the financial year in which the car was purchased. Here's how much tax refund you may be entitled to based on the price on your car.

For example, if you bought a car worth ₹15 lakh and 1% TDS was deducted by the dealer or seller at the time of purchase, then you may be eligible to receive a tax refund of approximately ₹15,000.

How to check if TCS on the car purchase was deducted or not?

The amount should eventually reflect against your PAN, but a taxpayer can also check the TCS deduction by looking at their Form 26AS and AIS statements. You can find the Annual Information Statement (AIS) on the income tax e-portal, where there is a dedicated section and the document is password protected.

However, if the credit is missing even though your car costed you over ₹10 lakh, then you should approach the dealer to verify the deposit and correction of TCS returns, as a mismatch may trigger a query from the tax department.

How to claim TCS refund?

An eligible taxpayer who meets all the requirements mentioned above can follow these steps to claim their TCS refund:

Step 1: Collect Form 27D (TCS certificate) from your car dealer or seller and ensure that your PAN, the amount of TCS collected and the collection date are accurate. If you did not receive the certificate from your dealer, you can also download it from the TRACES portal.

Step 2: Log in to the income tax e-filing portal using your credentials and verify that the TCS appears in your Form 26AS or AIS. If the credit is missing, reach out to your dealer before filing your ITR.

Step 3: Calculate your total income tax liability for the financial year in which you purchased the car. If your total tax liability exceeds the TCS amount, the credit will reduce your tax outgo. In case, your tax liability is lower than the TCS collected, you can claim the excess amount as a refund.

Step 4: File your ITR for the relevant financial year and ensure that you correctly claim the TCS amount reflected in Form 26AS or AIS before submitting and e-verifying the return.

Once you are done following all the above mentioned steps, you can simply log in to the e-filing portal and check the refund status under “View Filed Returns”. If eligible, the refund will be credited to your pre-validated bank account.