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Electric Vehicle Tax Benefits
Feb 28, 2023

Maximize Savings: Section 80EEB Electric Vehicle Deductions & Tax Benefits

With the government's emphasis on reducing pollution and promoting electric vehicles, owning an electric vehicle has become a popular practice in recent times. With the welfare of electric vehicle owners in mind, many insurance companies have also started providing electric vehicle insurance policies. These policies have been designed after taking into consideration the unique needs of electric vehicles. As such, they provide coverage that includes on-site charging, accidental and/or electrical breakdown pick-up and drop, roadside repair, and so on. However, the benefits gained by owning an electric vehicle go beyond helping the environment and receiving specialised insurance coverage. To encourage more people to purchase electric vehicles, the Indian government has introduced various incentives and tax benefits as well, the most important one of which is Section 80EEB. In this article, we will discuss Section 80EEB and how it benefits electric vehicle owners.

Section 80EEB: Overview

Section 80EEB is a new section added to the Income Tax Act of 1961 and introduced by the Indian government in the Union Budget 2019. Under this section, an individual can claim a deduction of up to Rs. 1.5 lakh on the interest paid on the loan taken for purchasing an electric vehicle. Section 80EEB tax benefits are a part of the FAME (Faster Adoption and Manufacture of Electric {and Hybrid} Vehicles) India Scheme and are designed to encourage the use of eco-friendly modes of transportation. As electric vehicles are being recognised as a sustainable substitute for conventional modes of transport, the FAME scheme and its associated benefits also aim to address environmental concerns. Note: If you own an electric vehicle, then it is legally mandatory that you purchase electric vehicle insurance. The Motor Vehicles Act of 1988 mandates that every vehicle owner riding their vehicle on Indian roads be insured under minimum third-party insurance coverage. So, if you own an electric scooter, you should have electric bike insurance, and for car owners, electric car insurance is a must.

Section 80EEB: Eligibility and Conditions

Any individual who has taken a loan to purchase an electric vehicle can claim a deduction under Section 80EEB. However, the following eligibility criteria and conditions must be satisfied to claim the deduction:
  1. The deduction can only be claimed by individuals who have taken a loan for the purchase of an electric vehicle and not any other type of vehicle.
  2. This deduction is not available to companies, firms, Hindu Undivided Families (HUFs), or any other type of entity.
  3. The maximum deduction that can be claimed under this section is Rs. 1.5 lakhs.
  4. The loan taken for the purchase of the electric vehicle should be from a financial institution such as a bank or a non-banking financial company (NBFC). The loan should also be sanctioned between 1st April 2019 to 31st March 2023.
  5. The taxpayer should not have any other existing vehicle registered in his or her name at the time of taking the loan to be eligible for this deduction.
  6. The deduction can only be claimed for the interest component of the loan taken for the purchase of the electric vehicle. The principal amount of the loan is not eligible for this deduction.
  7. An individual who is claiming tax benefits under Section 80EEB may not be eligible to claim the same deduction under other Sections of the Income Tax Act.
It is important to note that the taxpayer needs to provide proof of the loan taken and the interest paid on the loan to claim this deduction. Note that individuals who have purchased the electric vehicle for business purposes may also claim this deduction as a business expense. One can claim tax benefits for various other business expenses as well, such as the premium payment of an electric commercial vehicle insurance policy.

Understanding Electric Vehicles

In accordance with the guidelines outlined in Section 80EEB, the term "electric vehicle" pertains to a mode of transportation that solely operates on an electric motor. Furthermore, the vehicle's energy for movement must be derived from a traction battery that is integrated into the vehicle. Additionally, the vehicle must possess a regenerative braking system, which enables the transformation of the vehicle's kinetic energy into electrical energy upon application of the brakes. Hence, any vehicle that adheres to the given criteria is eligible for deductions under Section 80EEB.

Conclusion

In conclusion, Section 80EEB can be a beneficial tax-saving option for electric vehicle owners. With the increase in pollution levels and the government's emphasis on promoting green energy, electric vehicles have become the need of the hour. The tax benefits and incentives offered by the government have made it easier for individuals to purchase electric vehicles. However, some people may hesitate to buy an electric vehicle to avoid the repair costs which can be sometimes higher than that of conventional vehicles. Such high costs can be dealt with the help of a well-designed electric bike insurance policy. Do consult with a financial advisor and/or a tax expert before proceeding with any major financial decisions. Please note that tax benefits are subject to change in prevalent tax laws. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

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