Tax on Cars Collected at Source

Tax on cars collected at source is 1% which means 1% tax has to be paid by the buyer to the seller of the car. However, this is applicable only on the purchase of cars which cost more than Rs.10 lakh or when a cash payment of Rs.2 lakh is done.

The Government has come up with a new move to take control of the current economical situation. Finance Minister Arun Jaitley announced in his budget speech a few months ago that a tax of 1% will be levied on purchase of cars costing more than Rs.10 lakh. The Central Board of Direct Taxes made it pretty clear that here on, car dealers should collect a tax of 1% on every car sold, wherein payment for the car exceeds Rs.10 lakh or there exists a cash payment of Rs.2 lakh.

Tax Collected at Source @ 1% on Cars Purchase

Individuals who purchase cars and premium two-wheelers that costs more than Rs.10 lakh have to pay the seller a tax of 1% which will be included in the total tax liability of the individual who purchases the car.


Let’s consider the case of Ms. Sheshin who purchases a car for Rs.20 lakh. Since the car is worth more than Rs.10 lakh, Ms. Sheshin would be required to pay up 1% additional tax i.e. 20,000 in this case as the cost of the car is Rs.20 lakh. If her tax liability amounts upto Rs.1,20,000 at the end of that year, then she can claim credit of Rs.20,000 and only pay Rs.1 lakh as income tax.This tax has to be paid by the buyer to the seller. The seller will later deposit the tax amount with the Income Tax Department.

What you need to keep in mind regarding the 1% tax on cars collected at source

  • The tax is applicable only on purchase of cars above Rs.10 lakh or where there is a cash payment of Rs.2 lakh.
  • The buyer has to pay the seller 1% tax on the purchased car.
  • The owner of the car can later claim credit of the 1% tax while filing for income tax returns at the end of the year.
  • The tax has to be paid by the buyer to the seller who later will deposit it with the Income Tax Department.

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