Tax benefits on e-vehicles: How to avail it?

Did you know tax benefits are available under Section 80EEB of the Income Tax Act while purchasing e-vehicles?

Tax benefits on e-vehicles: How to avail it?

Despite the measures taken by the government to popularise electric vehicles, demand has remained static for a long time. Budget 2020 was an attempt to revive the demand for electric vehicles and to work towards a cleaner environment. In addition to slashing the GST on electric vehicles from 12% to 5%, it also provided tax benefits. It is expected that the increase in demand for e-vehicles will lead to less pollution and lower outgoings for buyers. 

What is the eligibility criteria for applying for exemption?

Section 80EEB of the Income Tax Act allows deductions for Indian taxpayers who opt for a loan to purchase an electric vehicle, commencing from assessment year 2020–21. An individual can avail of this deduction on an electric vehicle purchased for personal or business use. The benefit is not available to companies, Hindu Undivided Families, or any other taxpayer. Deduction on interest paid can be availed of from 1st April 2020 until the loan is repaid, so long as some important conditions are satisfied.

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How much exemption can be claimed under this Act?

A taxpayer can claim a deduction of not more than Rs 1,50,000 on interest paid a vehicle loan obtained to purchase an electric vehicle for personal or business use. In case of the latter, any interest paid over and above this amount can be claimed as a business expense, provided it is paid in the same assessment year and the vehicle is registered in the name of the business. The taxpayer requires to preserve the interest paid certificate, tax invoice of the vehicle, loan documents etc. to avail of the deduction.

What are the conditions for claiming exemption?

It is essential that the e-vehicle is registered and follows the legal procedure if it is to be eligible for tax exemption. Here are some conditions that need to be satisfied before exemption is granted:

  • The taxpayer can claim exemption on a loan taken by their spouse in case the payment of interest is being made by them. However, no deduction on principal paid can be claimed.
  • The taxpayer must avail of a loan from a financial or a non-financial institution with the sole purpose of purchasing an e-vehicle.
  • To claim an exemption, the loan should have been approved between 1st April 2019 and 31st April 2023.
  • Both residents as well as non-resident individuals can claim exemption under this Act.
  • After claiming deduction under Section 80EEB, a taxpayer is not entitled to claim deduction on interest under any other provision of the Act in the same or any other assessment year.

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How is an ‘electric vehicle’ defined under Section 80EEB?

The alarming rise in pollution levels, especially in large cities, has prompted the Indian government to take steps to promote the use of electric vehicles in the country. An e-vehicle is one that runs solely on an electric motor powered by an electric battery installed in the vehicle and is equipped with an electric regenerative braking system that converts kinetic energy into electrical energy.

A scheme called Faster Adoption and Manufacturing of Electrical Vehicles (FAME) was implemented by the Indian government to encourage the purchase of e-vehicles and create easy access to e-transportation and charging facilities. This scheme provides incentives for the purchase of electric 2, 3, and 4 wheelers. It has been implemented in two phases stretching over three years.

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Other benefits of e-vehicles

A report by the European Environment Agency (EEA), which compared the impact of electric vehicles with regular vehicles running on fossil fuels, found that e-vehicles consume 17–30% less energy than their fossil fuel counterparts. Let’s look at some other benefits:

  • Electric vehicles can be charged by using renewable sources of energy. The lower consumption of fossil fuel results in lower air pollution and consequently a reduction in air-borne diseases.
  • The approximate cost of electricity to recharge an e-vehicle works out cheaper than the cost of fossil fuel required to run the same vehicle. 
  • An e-vehicle can be charged at your home, saving you the inconvenience of visiting a gas station. 
  • Prominent e-vehicle manufacturers incorporate a large number of recycled material from old cars, electrical appliances etc. which makes e-vehicles more environmentally-friendly than other options.

Why not take advantage of the tax benefits on e-vehicles to drive towards a more sustainable future? Go green today! Here are some 5 Commonly asked questions about motor and car insurance.

 

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