Cost, loan, tax: What to consider before buying an electric car

EVs are expensive but economical on the long run; they are likely to become more popular as charging infra improves

The Union Minister of Road, Transport and Highways, Nitin Gadkari, declared recently that electric vehicles (EVs) would become as affordable as petrol vehicles by 2023. While only time will tell when the prices of the two types of vehicles reach parity, those planning to buy a car soon should consider the total cost of ownership, not just the initial purchase price.
 

Initial price
 

Electric cars cost more than their petrol counterparts in India. Ravi Bhatia, president and director, JATO Dynamics, an automotive research firm, says, “The ex-showroom price of electric cars is 36-40 per cent higher than that of ICE cars. The 8-9 per cent road tax benefit on EVs brings down their cost, nonetheless the final price is 20-30 per cent higher.”
 

The higher price of electric cars is primarily due to the cost of their batteries, which account for 48-50 per cent of total cost.
 

Running cost
 

While the initial purchase price of an electric car is higher, you will save a lot over the years on running cost. Puneet Gupta, director, S&P Global Mobility says, “Typically, the running cost of an electric car is around Rs1 per kilometre while that of a petrol vehicle is around Rs 10 per kilometre.”
 

Maintenance
 

The cost of maintaining electric cars is relatively low. Gupta says, “Electric cars require less maintenance than ICE cars as they have fewer components. Just some basic cleaning and servicing suffices.”
 

ICE cars need regular servicing and replacement of worn-out parts. However, EVs need battery inspections from time to time, as well as brake fluid refills. The primary batteries may have to be replaced after six-seven years.
 

Resale value
 

EVs have a lower resale value than petrol cars. This is because the ICE resale market is a well-established one while that of EVs is at a nascent stage.
 

Loan rates 
 

Banks like State Bank of India (SBI), Axis Bank, Bank of Baroda, Canara Bank and Punjab National Bank offer loans for EVs at reduced rates. Adhil Shetty, chief executive officer (CEO), BankBazaar.com says, “The interest rate on EV loans is about 10-30 basis points (bps) lower, on an average, than regular car loans.”

Typically, lenders offer
 

75-100 per cent of the cost of the vehicle as loan. The loan repayment period ranges from three to eight years.
 

Insurance
 

Both ICE and EV vehicles must have at least a third-party insurance. Kapil Mehta, co-founder and CEO, SecureNow says, “The third-party insurance rates for EVs are higher and are linked to battery capacity. Petrol cars have lower rates that are linked to the engine’s capacity.”
 

Own-damage rates are similar across both types of vehicles. Mehta says, “The engine seizure add-on cover is not relevant for EVs. Buy a battery protection add-on instead.”
 

The cost of a third-party cover for an EV car varies between Rs 1,700 and Rs 6,707. The cost of a comprehensive cover would vary widely, depending on the model and the add-ons chosen.
 

Taxation
 

From assessment year 2020-21, borrowers have been allowed to avail of a deduction on the interest paid on loan taken to purchase an EV under Section 80EEB of the Income-Tax Act, 1961. The loan should have been taken from a bank or a non-banking financial company (NBFC) and it should have been sanctioned between April 1, 2019 and March 31, 2023.
 

Archit Gupta, founder and CEO, Clear says, “The maximum amount of interest that can be claimed as deduction is Rs 1.5 lakh in a year. This benefit is available on EVs only, not on hybrid vehicles.”
 

If interest is claimed as deduction under this section, it can’t be claimed under any other section. Businessmen can’t then show the EV as a business asset and show interest on the loan as a business expense.
 

Gupta adds, “The tax benefits partially offset the possible cost of battery replacement in the future.”

ALSO READ: Automakers to double spending on EVs, batteries to $1.2 trillion by 2030
 

The government has reduced with the goods and services tax (GST) on EVs from 12 per cent to 5 per cent. The rate levied on ICE vehicles is 28 per cent.
 

What you should buy
 

While the initial purchasecost of EVs is higher, the total cost incurred over the entire period of ownership is likely to be lower. However, consider a couple of factors before opting for them.
 

EV charging stations are not easily available outside big cities. The time taken to charge the vehicle fully can vary depending on the type of charging equipment available. The charging station near your home must offer rapid charging facility, though a slower charging speed may not be an issue if you charge at home.
 

Gupta says, “If you travel long distances frequently, a petrol or diesel car is better. 
 

An electric car is perfect for commuting within the city.”
 

With time, EVs’ range and the availability of charging infrastructure are both expected to improve.
 

Bhatia says, “This who are buying an additional car may buy an EV, provided they have access to charging at home, can afford the higher initial price, and if their trips are of finite length.” Everyone else should stick to ICE vehicles for now.