Electric vehicles are better for the environment and an efficient alternative to fuel-run vehicles. The Government of India introduced Section 80EEB to offer tax deductions on the interest paid on the loan availed to purchase an electric vehicle.
If you want to purchase an electric vehicle, this post will help you understand what Section 80EEB is, the tax benefits under this Section, eligibility criteria and conditions required to apply for a tax deduction. Read on!
During the Union Budget 2019, the Finance Minister, Nirmala Sitharaman, declared an incentive for citizens in relation to the purchase of an electric vehicle. The new IT Section 80EEB was brought forward to promote the demand for electric vehicles like cars, bikes, scooters, electric bicycles, etc. Starting from the AY 2020-21, benefits under this Section apply to all those who meet the eligibility criteria.
Under the Indian tax laws, auto loans do not qualify for tax benefits. Cars for personal use fall under the luxury category. Therefore, salaried professionals do not enjoy tax deductions on car loans. However, Section 80EEB serves the purpose of promoting electric mobility in India. It is part of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme. The primary objective of this scheme is to boost sales of electric and hybrid vehicles and offer financial incentives for the purchase of these vehicles.
Under this incentive-based scheme, an individual can avail of tax benefits for electric two-wheelers, three-wheelers, and 4-wheelers. Phase II of this scheme began on April 1, 2019, and is set to complete by March 31, 2022. It has a total expenditure budget of Rs. 10,000 crore that the government intends to also invest in charging infrastructure and creation of electric transportation.
Also Read: How To Pay Income Tax Online?
Before we come to the tax deduction available under Section 80EEB, it is crucial to know whether one qualifies to claim tax benefits.
Section 80EEB of the Income Tax Act offers a tax deduction of up to Rs. 1,50,000 on the interest component of a loan taken to purchase an electric vehicle.
This deduction is available only for individual taxpayers. However, if an individual taxpayer takes a loan to purchase an electric vehicle for business purposes, he/she can claim any interest payment as a business expense.
To claim an interest payment above Rs. 1.5 lakh as a business expense, the registration of EV should be under the name of the owner or business enterprise. In this case, a deduction of Rs. 1.5 lakh under Section 80EEB will not apply. It is because the interest payment falls under business expense, and one cannot claim tax benefit on the same expense twice.
A taxpayer must keep the interest paid certificate and other documents handy. While filing your income tax returns, you might have to furnish all these documents.
If you are claiming a deduction under Section 80EEB, these are the conditions that you must follow:
Also Read: How To Use Online Income Tax Calculator?
Electric vehicles are the future of automobiles. In India, every year a new model of these environment-friendly, cost-effective, and highly efficient vehicles gets launched in the market. To increase electric mobility in India, the government introduced Section 80EEB of the Income Tax Act. The tax saving option under this Section gives an appealing prospect with regard to the purchase of an EV.
Ans: Under Section 80EEB of the Income Tax Act, individual taxpayers can claim a deduction of up to Rs. 1.5 lakh on the interest component of a loan taken to purchase an EV. However, each taxpayer can claim this deduction only once for the same or any other assessment year.
Ans: Section 80EEB does not fall under section 80C. The latter offers tax deductions and rebates for various investments and expenses, like PPF, ELSS, life insurance premium, home loan repayment, etc. Individuals and HUFs can claim a maximum deduction of Rs. 1.5 lakh. Meanwhile, the former offers a tax deduction of up to Rs. 1.5 lakh on the interest paid on an electric vehicle loan.
Ans: Section 80EEB of the Income Tax Act, 1961 allows taxpayers to claim deductions until the full repayment of the loan. Let’s say you take a loan to purchase an electric vehicle for a tenure of 5 years. You can claim a deduction of Rs. 1.5 lakh for each year till you repay the loan.
Ans: To encourage individuals to shift to electric vehicles, many Indian state governments offer additional benefits on top of tax deductions. Rajasthan, Karnataka, Andhra Pradesh, Telangana, Madhya Pradesh, Tamil Nadu, Punjab, Uttar Pradesh, and Uttarakhand offer EV owners full exemption from paying road tax.
Ans: Yes, the Indian government offers various subsidies for the purchase of electric vehicles. Under the FAME scheme, electric four-wheelers come with a maximum subsidy of Rs. 1.5 lakh. Moreover, you can get a subsidy of 40% on the purchase price of electric two-wheelers.
Before you go…