Get EV loan sanctioned by Mar 31 to avail benefit under Section 80EEB

If electric vehicle is for personal use, avail deduction on interest paid; if for business purpose, treat as expense

With barely a fortnight to go for the March 31 deadline, you need to act fast if you wish to qualify for the Section 80EEB benefit. This section was introduced in the 2019 Union Budget to promote the usage of electric vehicles (EVs).  

Suresh Surana, founder, RSM India, says, “Section 80EEB of the Income-Tax (I-T) Act, 1961, provides a deduction on interest paid on a loan taken from a financial institution to purchase an EV. A deduction of up to Rs 1.5 lakh can be availed under this section, provided a few conditions are fulfilled.”

Vivek Jalan, partner, Tax Connect Advisory, adds, “Section 80 EEB can lead to a tax benefit of around Rs 47,000 per annum.”

Who is eligible?

Hindu Undivided Family (HUF), an association of persons (AOP), a partnership firm, or a company cannot claim any benefit under this section.

Naveen Wadhwa, deputy general manager, Taxmann, says, “Only an individual (resident or non-resident), who has taken a loan to purchase an EV, is eligible to claim this deduction.” 

Other incentives

Besides this tax benefit, some state governments also offer other incentives to encourage people to buy EVs. Ankit Jain, partner, Ved Jain & Associates, says, “In Maharashtra, electric vehicle owners are eligible for a road tax exemption for five years from the date of registration.”

States such as Gujarat, Delhi, Rajasthan, Karnataka, Telangana, etc. also have their own EV policies, under which they offer subsidies on the purchase of electric cars and two-wheelers.

Green tax benefit

In Budget 2021, the government announced a Green Tax policy (with the aim of reducing pollution levels). Green Tax is charged at the time of renewal of a vehicle’s registration certificate, which occurs after every 15 years. EVs are completely exempt from this tax.

Things to keep in mind

Over and above other deductions: Claim this deduction correctly in your I-T return. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “This deduction is available for up to Rs 1.5 lakh per financial year. It is available over and above the deductions available under sections 24 and 80C of the I-T Act.” 

Business purpose: The methodology for claiming this tax benefit is slightly different if the EV has been purchased for business purpose. Bajaj says, “In such a case, the individual needs to claim the interest paid as a business expense.”

Jalan adds, “Micro, small & medium enterprises (MSME) can continue to take the benefit of depreciation on the car in addition to this benefit.”

Multi-year deduction: This is not a one-time tax benefit. The deduction on interest payment of up to Rs 1.5 lakh per year is allowed even in subsequent years, until the time the loan is paid off.

Mayank Aggarwal, partner designate, Luthra and Luthra Law Offices India, says, “Once deduction for interest paid is allowed under Section 80EEB, no deduction can be claimed under any other section for that interest payment for the same or any other assessment year.” 

Not available under new regime: This deduction is available only to those who opt for the old tax regime. Wadhwa says, “Assessees opting for the alternative tax regime under Section 115BAC are not eligible to claim a deduction under Section 80EEB.”

Lower Goods and Service Tax (GST): While GST is levied at the rate of 12 per cent for petrol and diesel vehicles, it is charged at a lower rate of 5 per cent for EVs.

Finally, those who wish to avail of this deduction must act fast. Aggarwal says, “Individuals who plan to purchase an EV need to ensure that their loan is sanctioned by March 31, 2023. Only then will they be able to claim the deduction under Section 80EEB.”

Section 80EEB benefit: Strings attached

The loan should be availed from a bank or a non-banking financial company (NBFC)

The deduction is available only on the interest repaid (not principal) and can’t exceed Rs 1.5 lakh

Only individuals, and not companies or firms, can avail of it

The EV should be registered in the name of the individual who has taken the loan

The assessee shouldn’t own any other EV on the date on which the loan was sanctioned

The loan should have been sanctioned between April 1, 2019 and March 31, 2023