Section 80EEB of Income Tax : Electric Vehicle Deductions & Benefits

The growing focus of the government on minimizing pollution and endorsing electric vehicles has led to a surge in the adoption of electric vehicles. In a bid to incentivize more individuals to invest in electric vehicles, the Indian government has implemented several measures, with Section 80EEB standing out as a crucial component. 

This article will delve into the details of Section 80EEB and highlight the advantages it offers to electric vehicle owners.

What is Section 80EEB of the Income Tax Act?

Introduced in the Union Budget 2019, Section 80EEB serves as an incentive for individuals investing in electric vehicles. In the budget announcement, the finance minister outlined that registered e-vehicles with advanced batteries would receive benefits under this scheme. Effective from the Assessment Year 2020-21, this new section allows a deduction for the interest paid on loans taken to acquire electric vehicles.

Under Section 80EEB, individuals can avail of tax deductions of up to ₹1,50,000 on the interest paid for the loan amount used to purchase electric vehicles, whether for personal or business purposes. This deduction remains applicable until the loan is fully repaid.

The tax benefits provided by Section 80EEB are aligned with the FAME (Faster Adoption and Manufacture of Electric {and Hybrid} Vehicles) India Scheme, aiming to promote the adoption of environmentally friendly transportation methods. Recognizing electric vehicles as a sustainable alternative to traditional modes of transport, the FAME scheme and its associated perks contribute to addressing environmental concerns.

In the context of this section, the term “vehicle” refers to a vehicle propelled exclusively by an electric motor, with its traction energy solely provided by a traction battery within the vehicle. Additionally, it encompasses vehicles equipped with an electric regenerative braking system, converting kinetic energy into electrical energy during braking.

Eligibility Criteria for Section 80EEB under the Income Tax Act

To qualify for the Section 80EEB deduction, individuals must adhere to the following eligibility criteria:

• Only individuals are eligible for this deduction; entities such as HUF, AOP, partnership firms, companies, and other types of taxpayers cannot claim it.
• The loan should be specifically utilized for the purchase of an electric vehicle.
• The loan must be availed between April 1, 2019, and March 31, 2023.
• Only loans from approved banks and NBFCs are considered for the rebate.

Amount of Deduction under Section 80EEB of the Income Tax Act

Section 80EEB provides a tax deduction of up to ₹1.5 lakh on the interest paid for a loan taken to acquire an electric vehicle.

However, it’s essential to note the following points:

• This deduction is exclusive to individual taxpayers.
• If an individual takes a loan for business purposes to buy an electric vehicle, they can claim an 80EEB tax rebate on interest paid exceeding ₹1.5 lakh.
• To do so, the interest paid must be claimed as a business expense.
• The electric vehicle must be registered in the name of the owner or the business enterprise for the tax rebate to be applicable.
• Taxpayers must keep the interest-paid certificate and other relevant documents for filing income tax returns.

Conditions to Claim 80EEB Deduction

When claiming a Section 80EEB deduction, individuals must adhere to the following conditions:

• The deduction limit for Section 80EEB is capped at Rs. 1.5 lakh annually, and no further deductions can be claimed under any other provision of the Income Tax Act.
• The deduction is a one-time benefit available to taxpayers for purchasing an electric two-wheeler or four-wheeler.
• This deduction can only be claimed if financing the purchase of an electric vehicle for the first time.
• Individuals must secure an auto loan to buy an electric vehicle from a recognized financial institution.
• The loan must be sanctioned during the period from April 1, 2019, to March 31, 2023.

Additional Tax Advantages for Electric Vehicles in India

The following highlights some of the tax perks associated with electric vehicles (EVs):

Reduced GST Rate: The government has slashed the Goods and Services Tax (GST) rate for EVs from 12% to 5%, providing financial relief to EV buyers.

Exemption from Green Tax: EVs, upon renewing their registration certificates after 15 years, would typically incur green tax. However, the government has exempted EV purchasers from this tax.

No Requirement for PUC Certificate: Unlike conventional diesel or petrol vehicles that necessitate a Pollution Under Control (PUC) certificate, electric vehicles, operating on batteries, are exempt from this requirement.

Lower Maintenance Costs: Electric vehicles incur lower maintenance expenses compared to traditional diesel and petrol vehicles.

Electric Car Insurance: Many insurance companies offer coverage specifically tailored for EVs, encompassing protection against third-party damage and comprehensive coverage akin to standard cars.

Additional Monetary Incentives for Electric Vehicles

Waiver of Registration Certificate Fees: The Union Ministry of Road Transport and Highways (MoRTH) has waived both issue and renewal fees for registration certificates for battery-operated vehicles.

State Government Incentives: Various state governments, such as Tamil Nadu, provide incentives to promote electric vehicle adoption. For instance, Tamil Nadu exempts 100% of motor vehicle tax on EVs registered in the state between January 1, 2023, and December 31, 2025.

Road Tax Exemption: The Delhi government, under the Delhi Electric Vehicle Policy, has announced the exemption of road tax for two- and four-wheeler electric vehicles.

Green Tax Exemption: Vehicles running on hydrogen fuel cells, electricity, or alternative fuels like CNG, LPG, LNG, etc., are not subject to the ‘green tax’ aimed at older vehicles contributing to pollution.

Conclusion

In conclusion, individuals seeking a more environmentally friendly and economical means of transportation should seriously contemplate the adoption of electric vehicles. Not only are they cost-effective, but they also embody a forward-looking approach. With the escalating costs of fossil fuels, electric vehicles emerge as a pragmatic choice.

The government’s backing, particularly in terms of tax relief on loans, renders these vehicles more economically accessible than in the past, enhancing their appeal for those venturing into car ownership for the first time.

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