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How to Save Tax on Electric Vehicles (EVs)?

  • Author :
  • TATA AIG Team
  • Published on :
  • 05/10/2023

Automotive industry experts believe that electric cars are the future. This is because they do not emit greenhouse gases or air pollutants. Indians are slowly becoming increasingly familiar with EVs as they save on petrol costs. Furthermore, you can avail income tax benefits on purchasing EVs. Thus, electric cars are not only fuel-efficient but also tax-efficient.

Learn about the income tax on electric vehicles in India and electric vehicle tax exemption.

Electric Car Tax Exemption Section

The finance minister announced tax incentives for electric vehicles in the Union Budget 2019. From 2020-21, tax deductions are allowed on interest paid on electric vehicle loans through section 80EEB, introduced during the session.

Introducing section 80EEB was primarily aimed at ensuring a green environment by reducing pollution, promoting eco-friendly transportation, etc.

80EEB Deduction to Avail Income Tax Benefit on EV

EV buyers who take out vehicle loans to purchase an EV can claim deductions under the Income Tax Act Section 80EEB. Individual taxpayers are entitled to a deduction of up to ₹1.5 lakhs on the interest component of vehicle loans to purchase electric vehicles. It is possible for a taxpayer to claim a deduction of up to ₹1.5 lakhs only once during the assessment year under this section.

This benefit is available only for individual taxpayers, and not for companies or businesses.

What are the Conditions for Claiming Under 80EEB deduction?

  • Individual taxpayers only qualify for the benefits of the 80EEB section of the Income Tax Act, not businesses or corporations.

  • However, the EV can be used both for personal and business purposes.

  • The benefit is available only to those purchasing the electric vehicle with a vehicle loan between 1st April 2019 and 31st March 2023.

  • In one financial year, if an electric vehicle is used for business purposes, and the interest paid on the vehicle loan exceeds the threshold of ₹1.5 lakhs, this can be deductible as a business expense.

  • A business owner must, however, register the vehicle under their name to take advantage of that benefit. You should obtain loans from financial institutions such as banks and non-bank financial companies.

  • An annual deduction of ₹1.5 lakhs is allowed under section 80EEB. You can claim a further deduction under any provision of the IT Act.

  • This deduction may only be claimed once by a taxpayer in a calendar year and is available to taxpayers who have purchased an EV for the first time. You can claim this deduction for electric two- and four-wheelers.

Electric Vehicles Tax Benefits in India

The following are some of the tax benefits of electric vehicles:

GST Rate To benefit EV purchasers, the government has reduced the GST rate for EVs from 12% to 5 %.

Benefits of Green Tax After 15 years, EVs are subject to green tax when they renew their registration certificates. A government exemption from this tax has been granted to EV buyers.

PUC Certificate not required Electric vehicles do not require the pollution control certificate (PUC) needed for diesel or petrol vehicles. In the case of petrol or diesel vehicles, the PUC specifies that those vehicles do not release any hazardous gases. EVs, however, do not require such certification since they operate on batteries.

Low Maintenance Electric vehicles require lower maintenance costs than regular diesel and petrol vehicles.

Electric Car Insurance Many insurance companies offer coverage for EVs to protect them against third-party damage and their own. Furthermore, all-electric car owners must purchase four-wheeler insurance in the same way as standard cars.

Other Monetary Benefits of Electric Vehicles

  • For battery-operated vehicles, the Union Ministry of Road Transport and Highways (MoRTH) has waived the issue and renewal fees for registration certificates.

  • Several state governments have offered incentives to encourage the use of electric vehicles. Tamil Nadu, for example, has exempted 100% of motor vehicle tax on EVs registered in that state. Electric vehicles registered from 1 January 2023 through 31 December 2025 are eligible for this exemption.

  • As part of the Delhi Electric Vehicle Policy, the Delhi government also announced the exemption of two- and four-wheeler electric vehicles from paying road tax.

  • Older vehicles contributing to pollution are subject to a 'green tax' charge. This tax does not apply to some vehicles that run on hydrogen fuel cells or electricity or that run on CNG, LPG, LNG, etc.

Do EVs Need Car Insurance?

Insurance for a car provides financial protection against damage to your vehicle.

To get a motor insurance policy for your EV, you can trust Tata AIG — a name synonymous with trust. One of the main perks of Tata AIG car insurance is its hassle-free claim process. There is a team of claim experts who will assist you through the entire process.

Apart from buying the car insurance policy, you can also do your car insurance renewal online.

Conclusion

Electric vehicles help reduce air pollution and promote sustainable living and offer various electric car tax benefits that can reduce your income tax. Many car buyers in India have become interested in electric vehicles due to government initiatives and incentives to promote them. Take advantage of these tax benefits to save money and help the environment. While purchasing an electric vehicle, consulting with a financial advisor or tax expert is highly recommended to understand the tax benefits.

Ensure you purchase four-wheeler insurance while buying an electric car. Tata AIG's motor insurance policy can help you in critical times. Tata AIG makes it easy to do car insurance renewal online.

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