Section 80EEB: Eligibility & Deduction Amount

Income Tax

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!

What is Section 80EEB?

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. 

Purpose of Section 80EEB

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?

Eligibility Criteria for Claiming Tax Benefits Under Section 80EEB

Before we come to the tax deduction available under Section 80EEB, it is crucial to know whether one qualifies to claim tax benefits. 

• Only individuals can claim tax deductions on interest paid on a loan taken to purchase an electric vehicle. 
• The following cannot claim tax benefits:

1. A  Hindu Undivided Family (HUF)
2. Association of Persons
3. Partnership Firm
4. Company 

• If taxpayers opt to pay income tax under the new tax regime, they cannot claim a deduction under Section 80EEB. 

Tax Deductions under Section 80EEB  of the Income Tax Act

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. 

Conditions to Apply for Deduction

If you are claiming a deduction under Section 80EEB, these are the conditions that you must follow:

• Section 80EEB deduction limit is set at Rs. 1.5 lakh per annum. One cannot claim further deduction under any provision of the IT Act. 
• The deduction is available only once to a taxpayer and for the purpose of purchasing an electric two-wheeler/four-wheeler. 
• You can claim this deduction if you are financing the purchase of an electric vehicle for the first time. 
• One needs to take an auto loan to buy an electric vehicle from a recognised financial institution. 
• The loan must be sanctioned during the period starting from April 1, 2019, to March 31, 2023.

Also Read: How To Use Online Income Tax Calculator?

Final Word

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.

FAQs on Section 80EEB

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.