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Section 80EEB – Deduction in respect of interest paid on loan taken for the purchase of electric vehicle

Updated on: 05 Mar, 2024 12:16 PM

In a bid to promote the adoption of electric vehicles (EVs) and combat climate change, the Indian government introduced Section 80EEB in the 2019 budget. This initiative incentivizes individuals by offering tax deductions on the interest paid for loans used to purchase EVs.

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.

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.

Want to claim interest paid on an electric vehicle loan? Our Tax Advisory Service helps you maximize your total deduction and save more taxes.

Who is eligible to claim deduction u/s 80EEB?

Only individuals are eligible to claim a deduction under section 80EEB. One question may come to your mind whether non-residents are also covered under this section? Well, in the absence of a specific provision, a deduction under section 80EEB will be available to both resident and non-resident individuals.

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.
deduction u/s 80EEB

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 is the meaning of Electric Vehicle?

A vehicle that is powered exclusively by an electric motor whose traction energy is supplied exclusively by a traction battery installed in the vehicle and has an electric regenerative braking system, which provides for the conversion of vehicle kinetic energy into electrical energy during braking.

Example: Given below is the information

A taken a loan to purchase an electric vehicle
Loan taken during FY 2019-20
Total interest payment during the year Rs. 2,00,000/-
Loan was taken from a relative

In the above case, no deduction of interest shall be allowed since the loan was taken from the relative.

However, in the above case, if a loan would have been taken from a financial institution, then the total deduction under section 80EEB shall be Rs. 1,50,000/-

Frequently Asked Questions

Q- For how many years this deduction shall be available?

Deduction under this section shall be available until repayment of the loan, provided other conditions are satisfied.

Q- Can I claim the interest in my ITR if the loan is taken by my wife?

If you are making a payment of interest, then you can claim a deduction under this section.

Q- What evidence do I need to submit to my employer to claim the benefit of section 80EEB?

You must have received an interest certificate from the bank that you can submit. However, a provisional interest certificate can also be submitted as evidence to claim deduction.

Q- Can a HUF claim the deduction u/s 80EEB?

Only individuals can claim the deduction under this section. HUF is not eligible to claim the deduction.

Q- Whether repayment of the principal amount of the loan is also available as a deduction under section 80EEB?

No, only deductions in respect to interest payments are available under this section.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.