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Section 80EEB of Income Tax Act: Interest on Electric Vehicle

In the union budget 2019, the central government has announced an incentive for buying electric vehicle. In the budget speech, the finance minister of India has said that advanced battery and registered Electric vehicles will be incentivized under the scheme. A new section of Income Tax Act, 1961-section 80EEB has been introduced allowing a deduction for interest paid on loan taken for the purchase of electric vehicles from the Assessment Year 2020-21.

Section 80EEB – Tax benefits on purchase of electric vehicles in order to be eligible to claim the tax benefit, the following conditions should be fulfilled:

  1. Loan should be taken from a bank of specified NBFC.
  2. Loan has to be sanctioned between the time frame of 1st April 2019 and 31st march 2023.
  3. The deduction shall not exceeds INR 1.5 lacs
  4. Loan taken for purchase of electric vehicle.
  5. Only the interest part of the loan is to be allowed for deduction
  6. Only individuals can claim the deduction under this section.

This deduction is allowed for Individual taxpayers only. In case, if the individual runs a business (proprietorship firm) and the vehicle is used for the purpose of business, he/she can claim it as a business expense in their books irrespective of the amount. The vehicle need to be registered in the name of the owner or in the name of their business enterprise. In that case, the deduction of INR 1.5 lacs will not be eligible since that person is already claiming it as a business expense and you cannot claim the same expense twice.

Some other benefits of buying Electric vehicles

  • EVs are exempt from road tax and registration costs in some states like Delhi is bringing a huge reduction in cost.
  • Low GST rate of only 5 percent.
  • Exempt from green tax- personal vehicle would be charged tax at the time of renewal of RC after 15 years. Whereas EV would be exempt from green tax entirely.
  • No fuel, no emission low maintenance because a traditional combustion engine contains hundreds of moving parts which is more wear & tear whereas an electric motor has fewer than 20.