Buying a car on Dhanteras, Diwali 2026? You could get at least ₹10,000 as tax refund next year -- here's how

Buyers of motor vehicles priced above ₹10 lakh pay 1% TCS, which can be claimed as a tax credit when filing an income tax return. Here's the entire process, other details.

Dhanteras and Diwali are considered auspicious occasions to bring home new appliances and vehicles. This is also when several brands roll out festive offers and discounts to encourage people to make big-ticket purchases.

If you are planning to buy a vehicle anytime soon, it is important to know that you could be eligible for a tax benefit of at least ₹10,000, which you can claim while filing your income tax return (ITR) next year.

When a vehicle's value exceeds the prescribed limit, the dealer collects 1% TCS (tax collected at source) at the time of sale. This is not additional charge but tax paid in advance, which you can claim as a credit.

In other words, it is your own money only, collected as tax in advance and refunded or adjusted when you file your return.

Who gets a tax refund on car purchase?

A 1% TCS is levied on the sale of a motor vehicle if its sale value exceeds ₹10 lakh. The provision is intended to help the tax department track high-value purchases.

The dealer collects this amount from the buyer at the time of the transaction and deposits it against the buyer's Permanent Account Number (PAN).

For example, if you bought a car worth ₹20 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 ₹20,000.

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.

A person can check their refund status by logging in to e-filing portal. If the claim is processed, the refund will be credited to your pre-validated bank account.

However, if your tax liability exceeds the TCS amount collected, the amount will be adjusted against your tax dues. If your tax liability is lower than the TCS collected, or nil, you can claim the excess amount as an income tax refund.