Section 80EEB: Deduction for Interest paid on E-Vehicle loan

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Maharshi Shah

Income Tax
Section 80EEB
Tax Benefits
tax deductions
Last updated on January 18th, 2024

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

Deduction under section 80EEB is not allowed if the taxpayer opts for the new tax regime
Tip
Deduction under section 80EEB is not allowed if the taxpayer opts for the new tax regime

Conditions to Claim Deductions u/s 80EEB

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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.

FAQs

Can I claim the principal amount payment of a loan as a deduction u/s 80EEB?

No, the taxpayer can only claim a deduction u/s 80EEB on the interest payment of the loan.

For how many years can I claim a deduction under section 80EEB?

An individual can claim a deduction under this section until the repayment of the loan.

If I have taken a loan to purchase an electric vehicle from a relative/friend, then is a deduction available?

No, the deduction u/s 80EEB is only available if the loan is taken from a financial institution or an NBFC.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback. :slight_smile:

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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