The Government of India has implemented significant measures aimed at both reducing pollution and increasing environmental-friendly growth. As part of these initiatives, a scheme has been introduced specifically addressing electric vehicles and their components. Additionally, they have provided an option for individuals under section 80EEB to claim deductions in their income tax returns for electric vehicles financed through loans.
The purpose of providing a deduction
The union cabinet has approved Phase II of the FAME scheme, which aims to promote the use of electric vehicles across the country. The program’s only objective is to boost electric mobility, and it does so by offering financial incentives to buy them and by building the necessary infrastructure for charging and transportation of electric vehicles. The policy includes incentives for electric two-wheelers, three-wheelers, and four-wheelers.
Moreover, to promote such a scheme and to encourage individuals to use electric vehicles, the government has provided deductions also for purchasing electric vehicles on loan.
Eligibility for claiming deduction u/s 80EEB
Only Individuals can claim deductions under section 80EEB of the Income Tax Act. Any other entity i.e. a partnership firm, HUF, a company, or AOP cannot claim deduction under this section.
Also, The eligible electric vehicle’s definition is provided by the department. According to that “electric vehicle” means a vehicle that is powered exclusively by an electric motor whose traction energy is supplied exclusively by the 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
Conditions to Claim Deductions u/s 80EEB
- The electric vehicle loan must be taken from a financial institution or an NBFC.
- The loan must be sanctioned between April 1, 2019, and March 31, 2023.
- The taxpayer can claim a deduction on the loan for the purchase of a 2-wheeler as well as a 4-wheeler.
- The interest which is allowable for deduction under this section can not be offered in any other section.
Deduction Amount available u/s 80EEB
An individual taxpayer can claim interest on a loan of an electric vehicle of up to INR 1.5 lacs under section 80EEB. Individual taxpayers must also make sure to have all the necessary documents when filing an income tax return. This deduction is available for all years till the loan repayment continues.
However, If the electric vehicle is used for business purposes, the business needs to report the vehicle as an asset and the loan as a liability. In such cases, the business can claim the interest on the loan as a business expense. Furthermore, the business owner can also claim depreciation on the electric vehicle as a business expense. To qualify for these business expense claims, the registration of a vehicle is to be in the name of the business or business owner.
Let’s understand with an example
Mr. Swapnil is a salaried individual who has purchased an electric vehicle for personal use. For financing, he has taken a loan from a Public sector bank and the date of loan sanction is 25/05/2022. However, it was disbursed on 07/07/2022.
Since the loan disbursement occurred on 07/07/2022, he can claim a deduction for the interest amount paid on the loan u/s 80EEB while filing his ITR for FY 2022-23. This eligibility is due to the loan being taken before 31/03/2023.
No, the taxpayer can only claim a deduction u/s 80EEB on the interest payment of the loan.
An individual can claim a deduction under this section until the repayment of the loan.
No, the deduction u/s 80EEB is only available if the loan is taken from a financial institution or an NBFC.