Section 80EEB of Income Tax Act

Any automobile; two-wheeler, three-wheeler, or four-wheeler, powered exclusively by a traction battery installed in the vehicle itself is recognised as an electric vehicle.

It comprises an electric motor rather than an internal combustion engine, and the battery can be charged using an external source. Moreover, EVs constitute an electric regenerative braking system for converting vehicle kinetic energy into electrical energy during braking.

Section 80EEB was introduced to the Income Tax Act in the 2019 budget. It is a special deduction offering income tax benefits on EV purchases. It focuses on increasing the country’s adoption of electric vehicles.

Under the section, taxpayers can claim deductions worth ₹1.5 lakh against the interest they pay on the loan taken to purchase an electric vehicle. This deduction significantly lowers the taxable income, enabling you to save a substantial amount in income tax liability.

To claim the 80EEB deduction, the taxpayer, loan issuer and electric vehicle must fulfil specific conditions and limitations. The deduction benefit is available only to car owners whose loan amount was sanctioned after April 1, 2019 and before March 31, 2023.

The various features of Section 80EEB of the Income Tax Act that make it unique and impactful are:

-Broad Coverage

The deductions apply to two-wheeler and four-wheeler electric vehicles. Therefore, its application caters to a wide variety of potential customers.

-Targeted Objective

The section’s objective is to increase electric vehicle purchases by making EVs more affordable with deductions on loan interest.

-Direct Tax Savings

It allows taxpayers to claim deductions on taxable income, thus reducing their tax liability directly.

-Improved Accessibility

A deduction of up to ₹1.5 lakh makes the electric vehicle more affordable. As a result, more people can afford to buy it.

-Flexibility

Both personal and business-use electric vehicle owners are eligible for the deductions. Thus, the provision caters to diverse needs.

-Enhanced Value Proposition

Factors like increased affordability and substantial tax liability savings make electric vehicles a preferable option to traditional fuel-powered vehicles.

-Backed by the Government

The section indicates the government’s commitment to creating a more sustainable transportation future and promoting cleaner and greener energy alternatives.

After understanding the meaning and features of Section 80EEB, it is vital to understand who qualifies for tax exemption for electric vehicles.

Category of Taxpayer

Individual taxpayers, such as salaried individuals, self-employed professionals, and business owners, can claim electric vehicle tax benefits under Section 80EEB.

The deduction does not apply to partnership firms, companies, Association of Persons (AOPs), Hindu Undivided Family (HUF), Body of Individuals (BOI), and other types of taxpayers.

Loan for EV Purchase

You are eligible for an 80EEB deduction if you purchase an electric vehicle on loan. This loan must be borrowed from banks or a Non-Banking Financial Company (NBFC).

Loan Sanction Period

To be eligible for the deduction, your loan must have been approved and disbursed between April 1, 2019 and March 31, 2023.

Vehicle Type

The Act applies to electric vehicles exclusively powered by an electric motor.

Section 80EEB of the Income Tax Act allows a deduction of ₹1.5 lakh against interest paid on loan availed for the purchase of an electric vehicle. An individual taxpayer can use this vehicle for personal or business use. With the help of the deduction, people using electric cars can reduce the interest amount paid on their loans.

If the car is used for business purposes, the individual taxpayer can claim a deduction of up to ₹1.5 lakh under Section 80EEB. Interest paid over and above this amount can be claimed as a business expense. However, you can claim a business expense only if the car is registered in the business enterprise’s owner’s name.

The various documents required for claiming an 80EEB deduction are as follows:

Documents Required

• Interest-paid certificate

• Loan agreement and sanction letter

• Loan repayment statements

• Electric vehicle purchase invoice

• Tax invoices

• Registration Certificate (RC) for electric vehicle

• Any other relevant documents required by the assessing officer of the tax department

• The deduction applies to loans borrowed from a bank or NBFC.

• The loan must be used to buy an electric vehicle.

• The loan must be sanctioned after April 1, 2019 and before March 31, 2023. Any loans sanctioned beyond this specific time frame are not eligible for income tax benefits on EVs.

• The electric vehicle must be as per the conditions listed in the Act.

• It must be powered only by an electric motor.

• The vehicle’s traction battery must supply traction energy.

• It must use an electric regenerative braking system during braking to convert kinetic energy to electrical energy.

• You must maintain accurate records and documentation to ensure the tax deduction process is smooth and hassle-free. If you are using the electric vehicle for business purposes, plan your finances strategically to benefit the most from Section 80EEB.

Section 80EEB is a win-win situation for taxpayers. It provides tax-saving benefits to individuals and reduces dependency on fossil fuels, enabling them to contribute to a cleaner environment.

The benefits of Section 80EEB include:

Tax Deduction

As stated earlier, Section 80EEB offers a tax deduction of up to ₹1,50,000 on the interest paid on a loan taken for purchasing an electric vehicle.

Promotion of Green Energy

The section promotes the use of electric vehicles, which are more environmentally friendly than traditional fuel-powered vehicles. As a result, it aids in reducing dependence on fossil fuels and pollution levels.

Financial Savings

The financial relief provided by the tax exemption for electric vehicles reduces its overall purchase cost. Moreover, electric vehicles have the potential for future savings on fuel costs as their running cost is generally cheaper than conventional automobiles.

Boost to EV Market

Section 80EEB encourages consumers to switch to electric vehicles, which can foster the development of the country’s EV market. Consequently, more manufacturers are considering investing in the technology and launching newer model options for consumers.

Sustainability

Another key benefit of Section 80EEB is sustainability, as increased adoption of electric vehicles reduces the transportation sector’s carbon footprint.

You can avail of income tax benefits on EV when filing income tax returns.

After entering all the income-related details, you will see an option for deductions under Chapter VI A. Select it to pick Section 80EEB and fill out necessary details like loan amount, sanction date, interest rate, interest amount, etc.

You must inform the Chartered Accountant or certified tax practitioner about your loan details to claim the 80EEB deduction if you have hired professionals to file income tax returns on your behalf.

You can claim an 80EEB deduction every year up to the repayment of the loan.

Here’s an example for better understanding.

Suppose you applied for a loan to buy an electric vehicle. Your loan was approved in February 2023 and has a repayment tenure until 2028. You can avail of an interest exemption for all the years until 2028 and the assessment year 2029.

80EEB is a special deduction offering tax benefits on the purchase of electric vehicles. This deduction not only lets individuals save money on their interest payments but also guarantees long-term savings as the running cost of EVs is less than traditional fuel-powered automobiles. It also creates an opportunity to contribute to the sustainability of the environment.
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Under the Act, an individual taxpayer can avail of a deduction of up to ₹1.5 lakh on the loan interest payments for electric vehicle purchases. Partnership firms, BOIs, AOPs, HUFs, companies and other types of taxpayers are not eligible for the deduction.

It is crucial to comply with the defined rules of the Act to enjoy income tax benefits on EV purchases. The deduction can be claimed until the repayment of the loan. Make sure you frequently review the compliance to know of any changes in tax implications. If you have hired a professional for income tax return filing on your behalf, remember to provide all the necessary documents for an 80EEB deduction.

Chapter VI A of the Income Tax Act offers provisions for several deductions. These include Section 80C, 80CC, 80D, 80E, 80EEA, 80JJAA, etc. The most popular sections that taxpayers benefit from are 80C and 80D.

You can claim deductions under the various sections of the Income Tax Act, depending on your eligibility. There are no restrictions on demanding deductions under more than one section.

Section 80D allows deductions of up to ₹25,000 on health insurance premiums. The deduction limit increases to ₹50,000 if the age of the insured is 60 years or above. Thus, buying a medical insurance plan not only provides financial protection in case of a medical emergency, it also offers tax-saving benefits.

With Tata AIG, you can buy health insurance online and enjoy tax-saving benefits under Section 80D. We offer different kinds of health insurance plans to cater to the differing needs. The premiums vary depending on the coverage you require. As the premium varies, the deductions you are eligible for under Section 80D also vary.

You can also opt for pre-existing disease health insurance in case you are suffering from any kind of ailments. Pre-existing diseases include high blood pressure, diabetes, etc. These are common in today’s fast-paced life, and investing in a health insurance plan to cope with the treatment expenses is a wise decision. Please note that you are eligible for the coverage after the waiting period. However, you can claim the tax deduction in the assessment year you paid the health insurance premium.