Tax Planning
How to Save Tax on Purchase of E-Vehicle

How to Save Tax on Purchase of E-Vehicle

 

In order to encourage the use of electric vehicles in India, the government introduced a new section, i.e. section 80EEB in income tax, that provides relief from income tax to the buyers of EVs. As per the provisions of section 80EEB, all individuals can claim a deduction of up to Rs. 1.50 lakhs per annum upon satisfaction of certain conditions.

Eligibility

The deduction under section 80EEB is only available to an individual assessee. Therefore, any other assessee, be it a company, HUF, partnership firm, etc., is not eligible to claim a deduction under the said section.

Conditions to claim the deduction

  • The taxpayer must be a first-time buyer of electric vehicles.
  • The taxpayer must have taken a loan for the purchase of an electric vehicle.
  • The loan must be taken from a financial institution (i.e. a bank or an NBFC).
  • The loan must be sanctioned between April 1st, 2019 and March 31st, 2023.

Amount of Deduction available

 

A taxpayer can claim a deduction for interest paid to a financial institution in a calendar year up to Rs. 1.50 lakhs per annum. An individual taxpayer can purchase an EV for both personal use and/or business use.

If an EV is used for business purposes and an individual has already claimed a deduction u/s 80EEB of Rs. 150,000, then he can claim the expense of interest paid over and above Rs. 150,000 as a business expense.

A taxpayer must obtain an interest paid certificate from the financial institution for income tax return filing purposes.

 

Illustration

 

Let us understand the provisions of Section 80EEB with following illustrations-

Particulars Mr. Manish Ms. Anjali
Occupation Businessman Salaried IT Professional
Loan taken for purchasing EV Rs.25 Lakhs Rs.18 Lakhs
Loan taken from NBFC Employer
Loan sanction date 15.06.2020 18.08.2020
Loan disbursed on 15.07.2020 7.09.2020
Purpose Purchase of EV for personal and business use Purchase of EV for personal use
Cost of EV Rs.30 Lakhs Rs.22 Lakhs
Interest Rate 10.5% p.a 8% p.a.
     
Whether taxpayer can claim deduction u/s 80EEB YES NO
If No, why N.A. The taxpayer has not taken loan from a financial institution as defined under the section.
Quantum of Deduction Interest paid

Or

Rs. 150,000

Whichever is lower.

Nil

 

Frequently Asked Questions (FAQs)

 

Can we claim deduction u/s 80EEB only once?

Deduction u/s 80EEB can be claimed every year till the repayment of the loan.  However, deduction is only given to individual if they have purchased an EV for the first time.

 

Can we claim deduction for payment of principal loan amount as well?

No, deduction can be claimed for only interest quotient. No deduction is given to the taxpayer on the repayment of principal amount.

 

Are hybrid vehicles are also eligible for deduction u/s 80EEB?

No, deduction u/s 80EEB is only available on purchase of electric vehicles as defined under the section 80EEB. And, hybrid vehicles do not fall under the definition of electric vehicles.

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