Buy Electric Vehicle & Save Tax
(Newly inserted section 80EEB)
In the Union Budget 2019, there were no major changes made to boost the auto sector, but announcements made to boost the electric mobility segment were significant. Government is looking forward to making India as a global hub for manufacturing of electric vehicles. Nirmala Sitharaman the Union Minister of Finance and Corporate Affairs also announced the phase II of the FAME Scheme plans to have an outlay of Rs10,000 crore for a period of 3 years beginning from 1st April 2019. The FAME scheme also includes solar storage batteries and charging infrastructure, which will give a boost to the manufacturing sector.
A new section 80EEB for deduction under chapter VI-A has been inserted and amendments will be effective from 1st April 2020. The deduction can be claimed for the interest paid on loan taken for the purchase of electric vehicle in the next four year period (01.04.2019 to 31.03.2023).
Details of Section 80EEB
|Section 80EEB||Deduction in respect of the purchase of electric vehicle|
|Eligible Assessee||Only Individuals|
|Maximum deduction||Rs. 1,50,000/-|
|Conditions to avail deduction|
Note: If assessee claims the deduction of interest u/s 80EEB then will not be allowed to take the deduction of such interest under any other provision of this Act for the same or any other assessment year. This means interest paid cannot be claimed as an expenditure from PGBP or any other head.
Note: Only advanced battery and registered e-vehicles will be incentivized under the FAME scheme.
Note: Electric vehicle will include electrically operated two-wheeled, three-wheeled and electric motor vehicles
What is an electric vehicle?
Electric vehicle as explained by this section (section 80EEB(5)(a) 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.”
What do you understand as a financial institution?
Financial Institution as explained by this section (section 80EEB(5)(b) means
“Financial institution 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 includes any deposit-taking non-banking financial company or a systemically important non-deposit taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B.”
Note: Definition of the financial institution is wider for the loan of an electric vehicle under section 80EEB as compared to the definition of the financial institution for the loan for affordable housing under section 80EE & section 80EEA.
Can principal repayment of the loan be claimed u/s 80EEB?
NO, only interest paid on loan will be allowed as deduction.
Can the deduction be claimed for the purchase of 2nd electric vehicle?
Yes. Section 80EEB does not explicitly mention that deduction will be allowed for the first vehicle only.
Other benefits for electric vehicle announced in the Union Budget 2019
- Govt. has proposed to the exemption in customs duty on import of certain parts of electric vehicles.
- Fitment Committee was directed to examine in detail the issues relating to GST concessions on an electric vehicle, charger, and hiring of an electric vehicle in 35th GST Council Meeting. It is expected that in the next meeting after considering the fitment committee’s recommendations and the Government’s proposal there will be reduction inf the GST rate of an electric vehicle from 12% to 5%.
Current GST rate HSN code for electric vehicles
|HSN||Description of goods||GST Rate (%)|
|87||Electrically operated vehicles, including two|
and three-wheeled electric motor vehicles
|85044030||Charger for Electric Vehicle||18%|
The government wants to encourage faster adoption of electric vehicles by making them more affordable by providing an upfront deduction on the purchase of electric vehicles. Switching to an electric vehicle ( environment-friendly ) will certainly reduce pollution in the country. In the coming years, to make this successful government will have to also establish the necessary infrastructure for charging, etc. The government claims that deduction u/s 80EEB will result in the tax benefit of approx Rs. 2.5 lakhs over the period of loan.
You may also like:
- Deduction for LIC, PPF, EPF, NSC Interest, etc. etc. (Sec 80C)
- Deduction for contribution to pension funds (Sec 80CCC)
- Deduction for interest on home loan (Sec 80EE)
- Deduction for interest on home loan for affordable housing (Sec 80EEA)
- Deduction for purchase of Electronic Vehicles (Sec 80EEB)
- Deduction in respect of certain undertakings or enterprises in certain special category states (Sec 80IC)
- Deduction in respect of interest on deposits in savings account (Sec 80TTA)
- Deduction in respect of interest on deposits in the case of senior citizens (Sec 80TTB)
- Comparison of deduction under section 80TTA and 80TTB