Section 80EEB: Deduction in Respect of Purchase of Electric Vehicle
Updated: Oct 1
Electric Mobility occupies a vital position in mitigating climate change and enabling green growth. Presently, there are about 2 million Electric Vehicles running on Indian roads. More than half of all vehicle models will run on electrical power by 2030. The Government of India offered various benefits for the citizens to encourage people towards green mobility. One such benefit is provided under Section 80EEB of the Income Tax Act, 1961. This came into force on April 1, 2020, and therefore, the benefit under Section 80EEB can be availed from A.Y. 2020-2021 onwards.
This article covers all aspects of Section 80EEB and how to maximize the tax benefits from these provisions.
Table of Content
Section 80EEB
To encourage the use of electric vehicles and to reduce carbon emissions, the Government of India encourages use of electric vehicles to the Indian citizens. To promote the use of electric vehicles in India, Section 80EEB is introduced. Under this section, the interest paid on loan for the purchase of electric vehicles whether two wheeler or four wheeler is allowed as a deduction upon satisfaction of certain conditions.
Meaning of Electric Vehicle
Electric Vehicle (EV) is defined under Section 80EEB and has the following features:
A vehicle that is powered entirely by an electric motor.
Whose traction energy is exclusively supplied by the traction battery installed in the vehicle.
The vehicle has an electric regenerating braking system that converts kinetic energy into electrical energy while braking.
Meaning of Financial Institution
Section 80EEB defines a financial institution as: a banking company to whom the Banking Regulation Act, 1949 is applicable, or any bank or banking institution as per Section 51 of the said Act. It also includes deposit-taking non-banking financial companies.
Deduction under Section 80EEB
Section 80EEB allows for a deduction in respect of interest on loan taken for the purchase of Electric Vehicle (EV). However, the loan should be sanctioned on or after April 1, 2019. Moreover, a maximum of INR 1,50,000 can be allowed as a deduction under Section 80EEB for interest payments on loans obtained for the purchase of an EV.
Who can Claim Deduction under Section 80EEB?
Section 80EEB allows for a deduction only to the individuals who avail loan for the purchase of EVs. Therefore, deduction under Section 80EEB cannot be claimed by:
Partnership firms
Association of Persons (AOPs)
Body of Individuals (BOIs)
Company
Unique Features of Section 80EEB
Some peculiar features of Section 80EEB are as follows:
The focus of Section 80EEB is to make Electric Vehicles (EVs) more viable environmentally and financially.
The section applies to both two-wheeler and four-wheeler, thereby, caters a wide range of potential customers.
The amount of deduction of INR 1,50,000 enhances the affordability of buying the same.
The Government’s initiative to promote a clean and green environment is reflected in the incentives provided for purchasing EVs.
Conditions for Claiming Deduction under Section 80EEB
Deductions under Section 80EEB are allowable if the following conditions are satisfied:
Only Electric Vehicles (EVs) defined under Section 80EEB are eligible for deduction.
The deduction is available only in respect of loans obtained from Banks or Non-Banking Financial Companies (NBFCs).
The loan should be sanctioned between the period from April 1, 2019 to March 31, 2023.
Documents Required to Claim Deduction under Section 80EEB
To claim the tax benefit under Section 80EEB, following documents are required:
Certificate of Interest Paid on loan obtained for EV should be available with the assessee.
Other documents related to the loan should be readily available with the assessee.
A valid tax invoice obtained at the time of purchase of EV should be available with the assessee.
Promoting Electric Mobility in India
The Indian launched the Faster Adoption and Manufacturing of Electric Vehicles (FAME) incentive programme. The Union Cabinet has approved Phase II of the FAME scheme, which aims to promote the use of Electric Vehicles (EVs) throughout the country. The programme aims to promote electric mobility in India. To facilitate the same, various financial incentives are provided to purchase EVs, and also the necessary infrastructure for charging and transporting EVs is built.
Frequently Asked Questions
Q1. Explain the meaning of ‘Electric Vehicle’ under Section 80EEB.
Electric Vehicles (EVs) also known as Battery Electric Vehicles (BEVs) use an electric motor rather than the internal combustion engine. The electric motor is powered by the large traction battery pack that must be plugged into the charging equipment also known as the Electric Vehicle Supply Equipment (EVSE). Since the vehicle runs on electricity, the vehicle emits no exhaust from its tailpipe and does not have any liquid fuel components.
Q2. Explain the meaning of ‘Financial Institution’ under Section 80EEB.
The financial institution under Section 80EEB means to include a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution as per Section 51 of the said Act. Financial Institution also includes deposit taking non-banking financial institutions or non-deposit taking non-banking financial institutions.
Q3. What are the prerequisites to claim deduction under Section 80EEB?
To claim the deduction under Section 80EEB, the loan must be obtained on or after April 1, 2019. It should be obtained by the individual and the deduction should be claimed in his name alone, not by any representative of the assessee.
Q4. For how many years the deduction under Section 80EEB is available?
The deduction under Section 80EEB is allowed till the loan is fully repaid from the date of initial repayment. Moreover, the loan must be sanctioned on or after April 1, 2019.
Q5. Can an assessee claim deduction under Section 80EEB in a representative capacity while filing the ITR?
Deduction under Section 80EEB can be claimed in the individual capacity by the purchaser of the electric vehicle (EV) in whose name the loan is obtained, and not in the representative capacity. Therefore, the assessee cannot claim deduction under the representative capacity under Section 80EEB while filing own ITR..
Q6. What is the amount of deduction allowable under Section 80EEB?
The maximum deduction of INR 1,50,000 is allowed under Section 80EEB. However, the amount of deduction will be restricted to interest paid or INR 1,50,000, whichever is less.
Q7. Who can claim deduction under Section 80EEB?
Deduction under Section 80EEB is allowed only to individuals on purchase of electric vehicles either a two-wheeler or four-wheeler whether or not for a business purpose. Moreover, the said deduction cannot be claimed by HUFs, partnership firms, companies, AOPs, or BOIs under the Income Tax.
Q8. List the documents required for claiming deduction under Section 80EEB.
Following documents should be available with the individual claiming deduction under Section 80EEB:
Interest payment certificate.
Tax invoice for purchasing an electric vehicle.
All other loan related documents.
Q9. For how long the deduction can be claimed under Section 80EEB after the purchase of an electric vehicle?
The deduction under Section 80EEB is allowed on interest payments in all the subsequent years until the loan is fully paid. The loan should however be sanctioned on or after April 1, 2019.
Q10. Does Section 80EEB allows deduction for the principal repayment of loan?
No. Section 80EEB only permits the deduction in respect of interest payment on loan obtained for the purchase of Electric Vehicles (EVs). Thus, deduction cannot be availed on the principal repayment of EVs loan.
Q11. Can a deduction under Section 80EEB be claimed if the loan is taken for a second-hand electric vehicle?
No, the deduction under Section 80EEB is only applicable to loans taken for the purchase of a new electric vehicle. Loans for second-hand electric vehicles do not qualify for this deduction.
Q12. Can both co-borrowers claim the deduction under Section 80EEB if the loan is jointly taken?
No, only one of the co-borrowers can claim the deduction under Section 80EEB. The deduction can be claimed by the individual in whose name the loan is primarily sanctioned and who is making the interest payments.
Q13. Is the deduction under Section 80EEB applicable for businesses using electric vehicles for commercial purposes?
Yes, an individual can claim a deduction under Section 80EEB even if the electric vehicle is used for business purposes. However, this deduction is available only to individuals, and not to businesses like companies, firms, or HUFs.
Q14. What happens if the loan is transferred to another financial institution? Can the deduction still be claimed?
Yes, the deduction under Section 80EEB can still be claimed if the loan is transferred to another financial institution, provided the loan continues to be for the purchase of an electric vehicle and the interest payment is made by the same individual.
Q15. Is it necessary to own the electric vehicle until the loan is fully repaid to claim the deduction under Section 80EEB?
Yes, to continue claiming the deduction under Section 80EEB, the individual must own the electric vehicle until the loan is fully repaid. If the vehicle is sold or transferred before the loan is repaid, the deduction for interest payments will no longer be allowed.
Q16. Can an individual claim deductions under both Section 80EEB and Section 80C for the same loan?
No, Section 80EEB is specifically for the interest on loans for electric vehicles, while Section 80C covers other types of investments and expenses such as provident funds, life insurance premiums, and principal repayments for home loans. These deductions cannot overlap for the same loan.
Q17. Is the deduction under Section 80EEB available under both the old and new tax regimes?
No, the deduction under Section 80EEB is only available under the old tax regime. If an individual opts for the new tax regime, they cannot claim deductions under Section 80EEB.
Q18. Can the deduction under Section 80EEB be claimed for electric vehicles purchased for personal use only?
No, the deduction under Section 80EEB can be claimed whether the electric vehicle is purchased for personal use or business use. However, the deduction is available only to individuals and not to any other entities like companies or HUFs.
Q19. Can an individual claim deduction under Section 80EEB for more than one electric vehicle?
Yes, an individual can claim deduction under Section 80EEB for more than one electric vehicle, provided that separate loans are taken for each vehicle and the loans meet all the criteria under the section.
Q20. Does the deduction under Section 80EEB cover leased electric vehicles?
No, the deduction under Section 80EEB is not applicable for leased electric vehicles. It only applies to individuals who purchase electric vehicles through a loan and make interest payments on that loan.
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