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Section 80EEB – Deduction in respect of interest paid on loan taken for the purchase of electric vehicle

Section 80EEB of Income Tax Act Electric Vehicle Tax Benefit

Intoduction

Section 80EEB was introduced in the 2019 budget by the Indian government with the aim to promote the adoption of electric vehicles (EVs) and combat climate change.This initiative offers tax deductions on the interest paid for loans used to purchase EVs, incentivizing individuals to opt for these environmentally friendly vehicles. The government’s focus on green growth and the reduction of reliance on fossil fuels is reflected in this policy, which aligns with global efforts to reduce carbon emissions and promote sustainable transportation

 

About section 80EEB

Section 80EEB of the Income Tax Act in India provides a tax deduction benefit for individuals on the interest paid on loans taken for the purchase of electric vehicles (EVs).

Only individual taxpayers are eligible for this deduction. It is not available to HUF, AOP, Partnership firms, companies, or any other type of taxpayer.

Eligible electric vehicles for this deduction include:

  • Electric cars
  • Electric scooters
  • Electric bikes
  • Other electric vehicles designed for personal use.

The deduction is available for both 2-wheeler and 4-wheeler electric vehicles

 

Benefits of Section 80EEB

The benefits of the Section 80EEB deduction are quite significant, especially for those looking to purchase an electric vehicle (EV). Here’s a summary of the advantages:

  • Tax Savings: A deduction of up to ₹1,50,000 on the interest paid on the loan for purchasing an EV.
  • Promoting Green Mobility: Encourages the adoption of EVs, which are more environmentally friendly compared to traditional vehicles.
  • Financial Incentive: The deduction can significantly reduce the cost of purchasing an EV, making it a more attractive option for individuals.
  • Supporting Government Initiatives: Aligns with the government’s target of achieving at least 30% EV replacement in India by 2030.
  • Exemption from Road Tax: In certain states, EVs are exempt from road tax, further reducing the overall cost of ownership.
  • Lower Registration Fee: Some states, including Delhi, offer a lower registration fee for EVs.

These benefits not only provide financial relief to the taxpayer but also contribute to a larger goal of sustainable and eco-friendly transportation.

 

Condition to claim deduction U/s 80EEB

To claim the deduction under Section 80EEB of the Income Tax Act for interest paid on a loan taken for the purchase of an electric vehicle (EV), the following conditions must be met:

  • Loan Source: The loan must be taken from a financial institution or a non-banking financial company (NBFC).
  • Sanction Period: The loan must be sanctioned between April 1, 2019, and March 31, 2023.
  • Vehicle Type: The deduction is specifically for loans taken to purchase electric vehicles.
  • Documentation: It’s necessary to have the interest-paid certificate and keep the loan documents handy at the time of filing the return.

These conditions are designed to ensure that the benefits of the deduction are targeted towards promoting the use of electric vehicles, which are more environmentally friendly.

 

Deduction under Section 80EEB

The quantum of deduction under Section 80EEB of the Income Tax Act is up to ₹1,50,000 per annum. This deduction is applicable on the interest paid on a loan taken for the purchase of an electric vehicle (EV). It’s important to note that no further deduction can be claimed for such interest payment under any other provisions of the Act for the same or any other assessment year

 

Meaning of Financial Intstiution

Under Section 80EEB of the Income Tax Act, a “financial institution” refers to a

  • Banking company to which the Banking Regulation Act, 1949 applies, or
  • Any bank or banking institution mentioned in section 51 of that Act.
  • Any deposit-taking non-banking financial company (NBFC) or a
  • systemically important non-deposit-taking NBFC

 

Meaning of Electric Vehicle

electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy;

 

Frequently Asked Questions

Q.1 What is the maximum deduction I can claim under Section 80EEB?

Answer : You can claim a maximum deduction of ₹1,50,000 for the interest paid on the loan taken for the purchase of an electric vehicle.

Q.2 Do I need to submit any documents to claim the deduction under Section 80EEB?

Answer : Yes, you should obtain an interest-paid certificate from the lender and keep necessary documents such as tax invoices and loan documents handy at the time of filing the return.

Q.3 Can I claim the deduction in the same year I buy the electric vehicle?

Answer : Yes, the deduction can be claimed in the same year you purchase the electric vehicle, provided the loan has been sanctioned and you have started paying interest on it.

Q.4 What happens if my loan amount is less than ₹1.5 lakh?

Answer : If your loan amount is less than ₹1.5 lakh, you can only claim a deduction for the actual interest paid, not exceeding the maximum limit of ₹1.5 lakh.

Q. 5 Is there any restriction on the type of electric vehicle for which I can claim the deduction?

Answer : The deduction under Section 80EEB is available for both 4-wheeled and 2-wheeled electric vehicles that meet the definition provided in the section.

Q.6 Are there any other benefits for electric vehicle owners besides the tax deduction?

Answer : Yes, electric vehicle owners may also benefit from exemptions from road tax, lower registration fees in certain states, reduced wear and tear due to fewer moving parts, minimal maintenance, and a lower GST rate of 5% for electric vehicles.

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