Section 80EEB – Tax Benefit for electric vehicle purchase loan

Are there any tax benefits for buying an electric vehicle on loan? Yes, in order to promote electric vehicle usage, the Government came out with this new Section 80EEB where the loan taken for the purchase of an electric vehicle can be claimed as a deduction like how you can claim the decution for your housing loan interest.

Section 80EEB has been inserted from the assessment year 2020-21. Under this section, the deduction is available if the following conditions are satisfied.

Section 80EEB – Tax Benefit for electric vehicle purchase loan

The conditions mentioned under this section for eligibility are as below.

# The assessee is an individual. Hence, the deduction is not available for others.

# He has taken a loan for the purpose of purchase of an electric vehicle. For this purpose, an “electric” vehicle means –

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

As the word “exclusive” is used, interest on a loan taken for the purchase of a “hybrid car” (which derives some of its power from a conventional engine like petrol/diesel) is not eligible for deduction.

# Loan is taken from a financial institution (like a bank or any deposit-taking NBFC or a systematically important non-deposit-taking NBFC).

# Loan should be sanctioned during the period of 1st April 2019 to 31st March 2023 (Means from FY 2019-20 to FY 2022-23).

# However, the period of benefit is available till the repayment of the loan continues.

How much tax deduction is available under Section 80EEB?

If the above-said conditions are satisfied, then an individual can claim a deduction under Section 80EEB. The deduction is available in respect of the interest payable on the above loan or Rs.1,50,000, whichever is less. As I mentioned above, the deduction is available from FY 2019-20 and subsequent assessment years.

Note that the same interest is not deductible twice. If interest is claimed as deduction under section 80EEB, then such interest is not again deductible under any other provision of the act for the same or any other assessment years.

You have to obtain the interest paid certificate and keep the necessary documents such as tax invoices and loan documents handy at the time of tax filing.

Based on the above information we have to understand that as of now, the tax benefit is available only for the loans sanctioned from FY 2019-20 to FY 2022-23. However, there is no such restriction on what should be the term of the loan as tax benefits on such loan can be claimed up the closure of the loan.

Is it wise to go for loan while purchasing electric vehicle?

Upfrontly if you look into the tax benefit, you are forced to judge that it is wise. However, if you think logically, then there is no tax benefit in it. Let us assume that there are two individuals (Mr.A and Mr.B) whose tax laibility is same and falling under 30% tax bracket.

Mr.A took electric vehilce loan. Assume that the interest paid during each year is Rs.1,50,000. In that case, up frontly he can save Rs.45,000 tax.

Mr.B does not have any such loan. Hence, he has to pay Rs.45,000 tax on his Rs.1,50,000 income.

If you look wisely, Mr.A by saving Rs.45,000 tax DONATING Rs.1,05,000 to the bank in the form of interest. However, Mr.B by paying Rs.45,000 tax (as he does not have loan), retaining Rs.1,05,000 in his pocket.

Hence, don’t run for availing loan while purchasing electric vehicle (especially if the intention is only for tax saving). That also avialing loan on such a depreciating asset is one more bad way to manage your money. Think wisely. Just because government announced certain tax incentives for such vehicle purcahse does not mean we blindly have to rush in.