Can you get tax benefit on purchase of an electric vehicle?

Knowledge sharing

With the technology advancements under the automobile sector resulting in increasing affordability, India has seen a significant rise in the demand of vehicles. Ones who cannot pay cash upfront are also purchasing vehicle(s) for the sake of travel convenience and luxury, banks and other financial institutions are offering loans for the same.

The FAME (Faster Adoption and Manufacturing of Electric Vehicles), an incentive scheme, was launched by the Govt. of India for the promotion of electric and hybrid vehicles in the country. Under the scheme, various incentives and benefits are available for electric three-wheelers, four-wheelers and two-wheelers.

Purchase of an electric vehicle comes with various benefits such as lower GST, exemption from Green Tax, no fuel no emissions, no or reduced road taxes in the certain states of India and low maintenance etc. Additionally, In order to provide tax incentive, the Govt. has introduced a new section 80EEB in the Income Tax Act, 1961 (‘the Act’) allowing a deduction for interest paid on loan taken for the purchase of electric vehicles subject to the prescribed conditions. Below is the gist of the newly introduced section;

Deduction available to

The deduction under this section is available to Individuals only. This deduction is not available to any other taxpayers.

Amount of the deduction

An individual can get a deduction for interest payable on loan taken by him/her up to INR 1,50,000 under this section.

Prescribed conditions to claim the deduction

The loan must be taken from a financial institution (as defined under the section) for purchasing an electric vehicle (as defined under the section).
The loan must be sanctioned by the financial institution between 1 April 2019 to 31 March 2023.
The deduction shall be allowed for the Assessment Year (AY) beginning AY2020-21 (Financial Year 2019-20) and subsequent years.
Where a deduction is allowed for the interest under this section, no other deduction shall be allowed for such interest under any other provisions of the Act.
Note – The deduction is allowed to an individual for personal use, however if the electric vehicle is used by the individual for business (proprietorship firm), in such case, the individual can also claim the deduction up to INR 1,50,000 under section 80EEB. Any interest payments above INR 1,50,000 can be claimed as a business expense. To claim the excess interest as a business expense, it is necessary that the vehicle should be registered in the name of the owner or the business enterprise and the individual taxpayer should obtain the interest paid certificate and keep the necessary documents such as tax invoice and loan documents handy at the time of filing of the return.

The introduction of section 80EEB is a good move by the Govt. for the travelling masses in India. People travelling to work and other places of importance can rightly benefit from this scheme at a personal level.