Understanding Income Tax Deductions for Electric Vehicle Purchases Under Section 80EEB

Sustainable growth is increasingly important globally, influencing government policies. In India, "Green Growth" was a key focus of the Union Budget 2023. This article explores the tax benefits available for electric vehicle (EV) purchases under Section 80EEB of the Income Tax Act.

What is Section 80EEB?

Section 80EEB of the Income Tax Act provides a tax deduction of up to Rs. 1.5 lakh on the interest paid for a loan specifically obtained to buy an electric vehicle. To qualify for this deduction, certain conditions regarding the loan provider and the EV itself must be met. This benefit is applicable only if the loan was sanctioned between January 1, 2019, and March 31, 2023.

Key Provisions of Section 80EEB

Eligibility Criteria for Deduction

This deduction is exclusively available to individual taxpayers who opt for the old tax regime. Other taxpayer categories, such as Hindu Undivided Families (HUFs), Associations of Persons (AOPs), partnership firms, or companies, are not eligible to claim benefits under this section.

Deductible Amount

Under Section 80EEB, individuals can claim a deduction of up to Rs. 1,50,000 for interest payments. This deduction is available whether the electric vehicle is intended for personal or business use. If the EV is used for business purposes, any interest payments exceeding Rs. 1,50,000 can be claimed as a general business expense. For business-use claims, the vehicle must be registered in the name of the owner or the business entity. Taxpayers should ensure they have the interest-paid certificate, tax invoices, and loan documents readily available when filing their tax returns.

Requirements for Claiming the Deduction

To claim the deduction under Section 80EEB, the following conditions must be satisfied:

• The loan for purchasing the electric vehicle must be obtained from a recognized financial institution or a non-banking financial company (NBFC).
• The loan must have been sanctioned during the period beginning April 1, 2019, and ending March 31, 2023.
• An "electric vehicle" is defined as a vehicle powered exclusively by an electric motor, with traction energy solely supplied by a traction battery installed in the vehicle. It must also feature an electric regenerative braking system that converts kinetic energy into electrical energy during braking.

Government Initiatives for Electric Mobility

The Indian government is actively promoting electric mobility through various schemes. The Union Cabinet approved Phase-II of the FAME scheme (Faster Adoption and Manufacturing of Electric Vehicles) to encourage the adoption of electric and hybrid vehicles nationwide.

The FAME scheme provides financial incentives for buying EVs and developing the necessary charging infrastructure. Incentives cover electric 2-wheelers, 3-wheelers, and 4-wheelers. Phase II of the scheme commenced on April 1, 2019, and was initially slated for completion by March 31, 2022. It is an expanded version of its first phase, with an initial outlay of Rs. 10,000 crores, later increased to Rs. 11,500 crores, covering the period from April 1, 2019, to March 31, 2024.