The Union Budget of 2019 was the announcement from the government of India to provide an incentive for the purchase of an electric vehicle in order to promote electric vehicles in the country as a measure to combat rising pollution. The Finance Minister announced during her budget speech that vehicles with advanced batteries and registered e-vehicles will be incentivized under the scheme. Beginning with the tax year 2020 – 2021, a new section 80EEB allows a deduction for interest paid on the loan amount taken for the purchase of an electric vehicle. To avail tax deductions and for filing income tax return in Tamabram, Chennai.

What is an Electric vehicle?

It refers to a vehicle that is powered solely by an electric motor and whose traction energy is supplied solely by a traction battery installed in the vehicle, as well as a vehicle that has an electric regenerative braking system that converts vehicle kinetic energy into electrical energy while braking.

What is section 80EEB?

This section allows for the deduction of interest payments on loans used to purchase electric vehicles, whether for personal or business purposes. The deduction under this section would be available until the loan was repaid. Deduction under Section 80EEB is available for both four-wheeled and two-wheeled vehicles.

Deduction under section 80EEB

Individuals can claim a deduction of up to Rs.1, 50, 000 per year for interest paid on a loan secured for the purchase of an electric vehicle under this section. The electric vehicle can be purchased for personal or commercial use. Individuals who own an electric vehicle for personal use will be able to claim the interest paid on the vehicle loan thanks to this deduction.

If the vehicle is for business purposes, he can still claim a deduction of up to Rs.150, 000 under Section 80EEB. Any interest payments made in excess of Rs.1, 50, 000 per year can be deducted as a business expense. To do so, the vehicle must be registered in the name of the business enterprise’s owner.

Eligibility criteria to avail deduction

The aforementioned deduction is only available to individuals and cannot be used by any other taxpayer. If the taxpayer is a firm, HUF, AOP, or company, they are ineligible to claim any benefits under this section.

Qualifications for claiming a deduction under section 80EEB

  • The deduction is only available to individuals and cannot be used by any other taxpayers such as a firm, HUF, AOP, or company.
  • The loan should be approved at any time between April 1, 2019, and March 31, 2023.
  • In the absence of any stipulation, the deduction under Section 80EEB is available to both residents and non-residents.
  • Once the deduction under Section 80EEB has been claimed, no further deduction for such interest payment can be claimed under any other provision of the Act or in any other assessment year.

Advantages of electric vehicles:

  • The most important thing is the tax benefit! Section 80EEB allows you to deduct Rs. 1,50,000 for interest paid on a loan used to purchase an electric vehicle.
  • Low GST rate – The government has reduced the rate of EVs from 12% to 5%. Furthermore, EVs are exempt from road tax and registration fees in some states such as Delhi, Tennessee, and others, and the same will be implemented in other states very soon. As a result, the vehicle’s purchase price will be significantly reduced.
  • Exempt from Green Tax – In Budget 2021, the government announced a Green Tax policy (the aim is to reduce the pollution level). Personal vehicles would be CHARGED TAX under the Green Tax when their registration certificate was RENEWED after 15 years. Electric vehicles, on the other hand, would be EXEMPT from the Green Tax entirely. In short, polluting vehicles are subject to taxes and levies.
  • No fuel, no emissions – A fully electric vehicle does not require any gasoline or diesel.
  • Low maintenance – While gasoline and diesel vehicles necessitate costly engine maintenance over their lifetimes, electric vehicles do not. This is due to the fact that a traditional combustion engine has hundreds of moving parts that can fail, whereas an electric motor has fewer than 20. This means that your electric vehicle will most likely have lower long-term maintenance costs than other vehicles.

Additional Benefits

For the first time, the government has announced additional incentives to individuals who purchase an electric vehicle under the following conditions:

  1. The term “Electric Vehicle” does not only refer to automobiles. In this context, this term refers to any electric vehicle. Even the purchase of a two-wheeler with a loan will provide their respective taxpayers with the opportunity to take advantage of these benefits under the new Section.
  2. A businessperson may deduct the interest paid on any loan used to purchase business assets from its business income. A salaried taxpayer was not eligible for any deductions or benefits. Individual taxpayers, such as salaried taxpayers, pensioners, and taxpayers with rental or interest income, can now take advantage of the deductions provided by Section 80EEB.
  3. It is not necessary for the assesse to use the vehicle in order to claim the deduction. A vehicle used by a family member, relative, or any other person may qualify for the benefits.
  4. Any deposit made with a Non-Financial Banking Company meets the eligibility requirements. It may even be a systematically important non-deposit accepting Non-Financial Banking Company, as defined in Explanation 4 to Section 43B of the Banking Regulations Act of 1949, Clauses (e) and (g).
  5. It should be noted that no deductions will be allowed if the loan for the purchase of the electric vehicle was obtained from a friend, employer, credit society, or other source. Deductions will be available only if the loan is obtained from a Financial Institution or a Non-Banking Financial Institution. This implies that the FI/NBFC must be-1)A banking company that is subject to the Banking Regulations Act of 1949.2)Section 51 of the Income Tax Act of 1961 defines a bank or banking institution.

Additional deductions

  • Interest Deduction under Section 80EEB is available only if an assessed makes no other claims for deduction under the Income Tax Act. Taxpayers who earn a business or professional income may deduct interest on the purchase of any business assets from their regular business income. As a result, such taxpayers will not be eligible for deductions under Section 80EEB.
  • If the electric vehicle is used as a personal asset, the taxpayer may claim the benefits of Section 80EEB deduction. In this case, interest is not deductible when calculating business income. In such cases, the taxpayer will have to forego the benefits of depreciation, which can only be obtained if the asset is used for business purposes.
  • It is always recommended to take advantage of depreciation deductions because it provides a better and broader benefit. This results in a deduction from the total cost of the vehicle over multiple years. The interest deduction, on the other hand, is only applicable to a limited amount of interest that is only a percentage of the loan amount.