Section 80EEB – Deduction for Electric Vehicle Loan Interest
Section 80EEB of the Income Tax Act
In this post, we’ll talk about Section 80EEB – Deduction for purchasing an electric vehicle and its benefits. Where we will take a close look at each section in detail:
Introduction to Section 80EEB of the Income Tax Act -Features
The government of India announced it will provide an incentive for the purchase of an electric vehicle to promote the use of electric vehicles in the country as a measure to combat pollution. In her budget speech, the Finance Minister announced incentives for advanced-battery vehicles and electric vehicles
In the assessment year 2020-2021, a new Section 80EEB was introduced, which allows taxpayers to deduct interest on loans taken for the purchase of electric vehicles.
Section 80EEB Eligibility
A deduction under this section is available only to individuals. Also other taxpayers are not eligible for this deduction. Therefore, you are not eligible to make a claim under this section if you are a HUF, AOP, partnership firm, corporation, or any other type of taxpayer.
To claim the deduction one has to take a loan from any financial institution for the purchase of an E-Vehicle and should not own any E-Vehicle before this loan.
Meaning
Financial Institution (FI):
- A banking company to which the Banking Regulation Act, 1949 applies, or;
- Any bank or banking institution referred to in section 51 of that Act, and;
- Any deposit-taking non-banking financial company (NBFC), or;
- A systemically important non-deposit taking NBFC i.e., an NBFC which is not accepting or holding public deposits and having total assets of not less than Rs.500 crore as per the latest audited financial statements and is registered with RBI.
E-Vehicle (EV):
“Electric Vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by a traction battery installed in the vehicle and has such an electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.
Conditions to Claim Section 80EEB Deduction
- Basically to purchase an electric vehicle, you must obtain a loan from a bank or other type of financial organisation.
- A loan can be taken for the purchase of an E-vehicle for personal use or business use. If taken for business use, any interest payment above Rs.1,50,000/- can be claimed as a business expense. To claim it as a business expense, it is necessary that the vehicle should be registered in the name of the owner or the business enterprise.
- The loan must be approved at any date between April 1, 2019, and March 31, 2023.
Benefit Period
The tax deduction under this section can be made from AY 2020-21 and subsequent AY till the loan is repaid.
The current tax benefit is not only available under Income Tax, but also under GST. As a part of promoting more EVs, the government has cut the GST rate to 5% from the earlier 12%.
Threshold of Deduction
- Interest paid, subject to a maximum of Rs.1,50,000. Such Interest will not be allowed as a deduction under any section or for any other assessment year.
- Deduction is available only on Interest paid and not on Principal payment.
- Taxpayers should obtain the interest paid certificate and keep the necessary documents such as tax invoices and loan documents handy at the time of filing the tax return.
Benefits of Buying Electric Vehicles
Tax benefits: A taxpayer can deduct the interest on an electric automobile loan from a banking institution or NBFC under section 80EEB or in his/her book of account as a business expense.
GST Rate: The government has reduced the GST rate from 12% to 5% for electric vehicles.
Green Tax: A green tax vehicle would be charged at the time of renewing its registration certificate every 15 years, However, electric vehicles would be exempt from the Green Tax.
No Cost: After all Electric vehicles do not require petrol or fuel.
Low maintenance cost: Traditional vehicles require almost 100 moving parts, whereas electric vehicles only have around 20.Altogather this explains why electric vehicles require very little maintenance.
Pollution control: when compared to other vehicles, it is more environmentally friendly.
Promotion of Electric vehicle in India
Phase-II of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme for promoting electric mobility in the nation has been approved by the union cabinet. The Indian government has created the FAME incentive programme to encourage the use of electric and hybrid vehicles in the nation.
The program’s main goal is to encourage the use of electric vehicles, and it provides financial incentives for doing so as well as for the development of infrastructure for electric transportation and charging.
As a result the scheme offers incentives for electric 2-wheelers, 3-wheelers, and 4-wheelers. Finally the Phase-II of the programme began on April 1, 2019, and it will end on March 31, 2022. An enlarged version of the first phase is Phase-II. Over the course of three years, FAME India Phase II would cost a total of Rs 10,000 crore.
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