To promote the use of Electric vehicles in India, the government come up with new section to give tax relief to EV buyers

1. Eligible Assessee

An Individual who has taken a loan for purchase of E-Vehicle from any Financial Institution and who has never owned an E-vehicle can avail such tax relief. Further, Interest payable on such loan would qualify for deduction under Section 80EEB.

2. Conditions:

  • The Assessee should be an Individual (i.e. Deduction not available to any other taxpayer),
  • Loan should be taken for purchase of an E-vehicle for personal use or business use. In case of business use any interest payment above Rs.1,50,000/- can be claimed as a business expense. To claim as a business expense, it is necessary that vehicle should be registered in the name of the owner or the business enterprise.
  • Loan should be sanctioning during the period between 01.04.2019 and 31.03.2023,
  • Loan should be sanctioned by a FI(i.e bank or specified NBFCs).

3. Period of Benefit

The benefit of deduction under this section would be available from A.Y 2020-2021 and subsequent assessment years till the repayment of loan continues.

Not just the Income tax benefit, an EV purchase will also bring you tax benefit on GST, with the government having cut the rate to 5% from the earlier 12%

4. Quantum of deduction

  • Interest payable, subject to a maximum of Rs.1,50,000/-and such Interest would not be allowed as deduction under any other provision of the Act for the same or any other assessment year.
  • Further note that deduction is available only on Interest paid not on Principal payment.
  • Do note that an 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.

Section 80EEB - Deduction in respect of purchase of electric vehicle

5. Meaning

  • Financial Institution: FI means
  • A banking company to which the Banking Regulation Act, 1949 applies, or
  • Any bank or banking institution referred to in section 51 of that Act and
  • Any deposit taking non-banking financial company (NBFC) or
  • A systemically important non-deposit taking NBFC i.e., a NBFC which is not accepting or holding public deposits and having total assets of not less than Rs.500 crore as per latest audited financial statements and is registered with RBI.
  • E-Vehicle: “electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

ILLUSTRATION 1

The following are the particulars relating to Mr. Narendra and Mr. Amit, salaried individuals, for A.Y.2022-23.

Particulars Mr. Narendra Mr. Amit
Amount of loan taken 22 lakhs 15 lakhs
Loan taken from Deposit taking NBFC Public sector bank
Date of sanction of loan 01.04.2020 30.03.2019
Date of disbursement of loan 01.05.2020 01.05.2019
Purpose of Loan Purchase of electric vehicle for personal use Purchase of electric vehicle for personal use
Cost of E-Vehicle 25 lakhs 19 lakhs
Rate of Interest 10% p.a. 10% p.a.

Compute the amount of deduction, if any, allowable under the provisions of the Income-tax Act, 1961 for A.Y.2022-23 in the hands of to Mr. Narendra and Mr. Amit. Assume that there has been no principal repayment in respect of any of the above loans upto 31.03.2022.

SOLUTION

Particulars Rs.
Mr. Narendra  
Interest deduction for A.Y.2022-23  
a)  Deduction under Chapter VI-A from Gross Total Income  
Deduction u/s 80EEA
(22 lakhs x 10% = 2,20,000, restricted to 1,50,000, being the maximum permissible deduction) 1,50,000
 
Mr. Amit
Interest deduction for A.Y.2022-23
b)  Deduction under Chapter VI-A from Gross Total Income Nil
Deduction u/s 80EEB is not permissible since loan was sanctioned before 1.4.2019.

Author Bio

Qualification: CA in Practice
Company: JAIN PC and ASSOCIATES
Location: Ahmedabad, Gujarat, India
Member Since: 24 Jun 2021 | Total Posts: 15
Hi there!! Myself CA Mohit Loonkar a practising Chartered Accountant from Ahmedabad. I can be reached at [email protected] View Full Profile

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