Section 80EEB – Tax benefits of Electric Vehicle Loan

India’s focus on green energy and sustainability has led to various incentives for adopting electric vehicles (EVs). One such benefit is the Section 80EEB deduction introduced under the Income Tax Act, 1961. This provision allows individuals to claim a tax deduction on the interest paid on loans taken for purchasing electric vehicles. 

Here’s an in-depth look at Section 80EEB and how it benefits taxpayers.

What is Section 80EEB?

Section 80EEB is a provision under the Income Tax Act that provides tax benefits to individuals who have availed of a loan to purchase an electric vehicle. This initiative encourages the use of EVs to reduce carbon footprints and promote eco-friendly transportation.

Eligibility for Claiming Deduction Under Section 80EEB

To avail the benefits of the Section 80EEB deduction, it is crucial to meet specific eligibility criteria. Here’s a detailed explanation:

1. Who Can Claim the Deduction?

• Individual Taxpayers Only:
  Section 80EEB is exclusively available to individual taxpayers. This means that partnerships, Limited Liability Partnerships (LLPs), companies, and other entities cannot claim the deduction under this provision.

• Resident and Non-Resident Indians:
  Both resident and non-resident Indians are eligible, provided the vehicle is registered under their name.

2. Loan Requirement

• The electric vehicle must be purchased through a loan sanctioned by a financial institution such as a bank or a non-banking financial company (NBFC).
• Self-financed purchases or those made without a loan do not qualify for this deduction.

3. Loan Sanction Period

• The loan must be sanctioned between April 1, 2019, and March 31, 2023. Loans approved outside this period are not eligible for the deduction under Section 80EEB.

4. Electric Vehicle Ownership

• The vehicle must be registered in the name of the individual taxpayer claiming the deduction.
• The deduction cannot be claimed if the vehicle is purchased in someone else’s name, even if the loan repayment is being made by the claimant.

5. Type of Vehicle

• Only Electric Vehicles Qualify:
  The vehicle must be an electric vehicle powered exclusively by an electric motor and energy stored in batteries. Example – Electric cars and electric bike
• Exclusions:
  Hybrid vehicles or those using a combination of fuel and battery are not covered under Section 80EEB.

6. First-Time Deduction Claimant

• The deduction is available only for the first purchase of an electric vehicle by the individual. This ensures that the benefit is given to encourage new EV buyers.

Points to Note

• Taxpayers must provide necessary documentation such as the loan sanction letter, interest payment certificate, and proof of vehicle registration.
• Businesses purchasing EVs for commercial purposes, even if owned by individual entrepreneurs, cannot claim benefits under this section. However, they may explore depreciation benefits under other sections.

Amount of Deduction Under Section 80EEB

Section 80EEB provides a substantial tax benefit to individuals who have taken loans for the purchase of electric vehicles. Here’s a breakdown of how much you can claim:

1. Maximum Deduction Limit

The maximum deduction allowed under Section 80EEB is ₹1,50,000 per financial year. This deduction applies solely to the interest component of the loan repayment.

2. Actual Interest Paid

Taxpayers can claim the actual amount of interest paid during the financial year, up to the ceiling of ₹1,50,000.

For example: If the interest paid during the year is ₹1,20,000, you can claim the full amount as a deduction. If the interest paid is ₹1,80,000, the maximum deduction allowed will be capped at ₹1,50,000.

3. Applicable to Single EV Loan

The deduction applies per individual, not per loan. If multiple loans are taken for different EVs, the total deduction claimed under Section 80EEB in a single financial year cannot exceed ₹1,50,000.

4. No Carry Forward Provision

If the interest paid exceeds ₹1,50,000 in a financial year, the unclaimed amount cannot be carried forward to the next financial year.

Impact on Tax Liability

• By claiming the Section 80EEB deduction, taxpayers can effectively reduce their taxable income by up to ₹1,50,000.
• The exact savings depend on the individual’s tax bracket:
  • 10% Tax Bracket: Save up to ₹15,000.
  • 20% Tax Bracket: Save up to ₹30,000.
  • 30% Tax Bracket: Save up to ₹45,000.

How to Claim Deduction Under Section 80EEB?

To claim the deduction:

• Maintain proof of the loan sanction letter and interest certificate from the financial institution.
• The vehicle must be registered in the name of the individual claiming the deduction.
• The deduction can be claimed while filing your Income Tax Return (ITR) under the relevant financial year.

Conclusion

Section 80EEB is a commendable initiative for promoting the adoption of electric vehicles in India. By offering financial relief, it not only encourages individuals to go green but also aligns with the government’s vision of a sustainable and eco-friendly future.

If you’re planning to purchase an electric vehicle, now is the time to act. With tax benefits like Section 80EEB, you can make a positive impact on your finances and the environment.