Section 80EEB – Deduction in Respect of Interest Paid on Loan Taken for the Purchase of Electric Vehicle

What is Section 80EEB?

Under this section, deduction of interest payment on a loan taken to purchase an Electric Vehicle shall be available whether for personal or business purposes. The deduction under this section would be available till the repayment of the loan.

Deduction u/s 80EEB is available for 4-wheeled vehicles and also for 2-wheeled vehicles. This section allows you to claim a deduction of upto Rs.1.5 lakhs on the interest paid on the loan taken to purchase the electric vehicle. It can be claimed only if the loan is approved between 1 January 2019 and 31 March 2023.

Benefits of 80EEB Deduction

• The loan must be obtained from either the bank or a specified NBFC.
• Loan sanctions are applicable for the period between 01/04/2019 and 31/03/2023.
• Only individuals are eligible for deductions in this section, with a maximum cap of Rs. 1.5 lakhs.
• This deduction is specifically designed for the purchase of electric vehicles.
• Exemption from road tax.
• In certain states, including Delhi, a lower registration fee.
• Electric motors have fewer than 20 moving parts, leading to reduced wear and tear.
• No emissions when the vehicle is not fueled, resulting in minimal maintenance.
• GST rate for electric vehicles is reduced to 5% from 12%.
• Upon RC renewal after 15 years, a tax will be applied, but electric cars are exempt from the green tax.

The Promotion of Electric Vehicles

The implementation of the tax deduction benefit under Section 80EEB is one of the government initiatives aimed at promoting the widespread adoption of electric vehicles and diminishing reliance on fossil fuels. These governmental efforts, along with increasing awareness of climate change and global warming, have led to a notable surge in electric vehicle purchases within the country. Official data from Vahan indicates that India witnessed 1 lakh electric vehicle acquisitions for the fifth consecutive month in February 2023, with over 65,000 electric two-wheelers sold.

What is the Quantum of Deduction Available Under Section 80EEB?

A deduction of up to Rs 1,50,000 for interest payments is available under Section 80EEB. Whether an individual taxpayer possesses an electric vehicle for personal or business use, this deduction allows for the claiming of interest paid on the vehicle loan.

For personal use, individuals with electric vehicles can avail themselves of this deduction to offset the interest paid on the vehicle loan. In the case of business use, the deduction under Section 80EEB extends up to Rs 1,50,000, and any interest payments exceeding this amount can be asserted as a business expense. To qualify as a business expense, it is imperative that the vehicle is registered in the name of the owner or the business enterprise.

It is important to note that individuals seeking this deduction should obtain the interest-paid certificate and maintain essential documents, including tax invoices and loan agreements, for reference during the tax return filing process.

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Who is Eligible to Claim Deduction u/s 80EEB?

Only individuals are eligible to claim a deduction under section 80EEB. It cannot be claimed by any other type of taxpayer, and taxpayers opting for the new regime. This deduction is only available under the old regime. If you are an HUF, AOP, BOI, partnership firm, company etc, you cannot claim any deduction under section 80EEB.

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What are the Conditions to Claim Deduction u/s 80EEB?

• Source and period of sanction: The loan must be taken from Financial Institution*, and the loan must be sanctioned during the period between 01 April 2019 and 31 March 2023.
• Purpose: A loan should be taken to purchase an electric vehicle.
• No deduction under any other provision: The interest allowed under section 80EEB shall not be available under any other section of the Act.
• Electric Vehicle definition: An Electric vehicle is defined as a vehicle powered exclusively by an electric motor whose traction energy is supplied with the help of a traction battery installed in the EV and has an electric regenerative braking system, which helps in converting kinetic energy into electrical energy while braking.

Let’s understand the meaning of some important terms used above :

What is the Meaning of Financial Institution?

• A banking company to which the Banking Regulation Act 1949 is applicable, or
• Any bank or banking institution referred to in section 51 of that Act
• Any NBFC taking a deposit or
• A systemically important non-deposit-taking, non-banking financial company ( which means non-deposit NBFC having total assets of not less than Rs.500 crore as per the last audited balance sheet and registered with the RBI).

What are the Features of Section 80EEB?

Given below are the features of section 80EEB -

• Targeted incentive - It provides a deduction of the loan interest to provide an incentive for taking a loan for electric vehicles to increase the purchase of EVs.
• Broad Scope - It is applicable to all types of electric vehicles, including two-wheelers and 4-wheelers.
• More Affordable - The deduction of upto Rs.1.5 lakhs is available on the total income, thus reducing the overall tax liability of the taxpayer.
• Direct Tax Savings - It directly reduces the overall taxable income and the tax liability of taxpayers.
• Flexible Use - It can be claimed for both personal and business use of electric vehicles.

What are the Documents Required for Claiming Section 80EEB Deduction?

• Loan Sanction Letter - This document serves as a proof that the loan was sanctioned within the period of eligibility.
• Interest Certificate - A certificate from the lender consisting of the interest paid on the loan during the FY.
• Repayment Schedule - A comprehensive schedule that provides the history of loan repayments.
• Vehicle Purchase Invoice - This invoice acts as a proof of the purchase of the electric vehicle.

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