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Tax Benefits of Electric Vehicles in India: Save Money Going Green

Tax Benefits of Electric Vehicles in India: Save Money Going Green

Electric vehicles (EVs) are a sustainable transport choice, reducing air pollution and carbon emissions. They also offer tax benefits in India under Section 80EEB of the Income Tax Act. This guide will outline the eligibility, conditions, and process for claiming these benefits, as well as discussing India's promotion of electric vehicle mobility solutions.

 

Understanding Section 80EEB: Tax Deduction on Electric Vehicle Loans

Section 80EEB of the Income Tax Act is a provision that allows individuals to claim tax deductions on the interest paid towards loans taken specifically for the purchase of electric vehicles. Under this section, taxpayers can avail a tax deduction of up to Rs 1.5 lakh on the interest component of the loan. This deduction is applicable to both four-wheeler and two-wheeler electric vehicle purchases. However, to claim the tax benefit, certain eligibility criteria and conditions must be met.

Eligibility Criteria for Section 80EEB Deduction

To be eligible for the tax deduction under Section 80EEB, individuals must fulfill the following criteria:

  1. The taxpayer must be an individual. This tax benefit is not available to any other type of taxpayer, such as a Hindu Undivided Family (HUF), Association of Persons (AOP), Partnership firm, or company.
  2. The loan must be used exclusively for the purchase of an electric vehicle.
  3. The loan must be sanctioned between April 1, 2019, and March 31, 2023.

Conditions for Claiming the Deduction

While the eligibility criteria define who can claim the deduction, there are additional conditions that taxpayers must meet to avail the tax benefits:

  1. The loan must be taken from a financial institution or a non-banking financial company (NBFC) approved by the government.
  2. The loan must be sanctioned within the specified period mentioned earlier.
  3. The electric vehicle should meet the criteria defined by the government. An electric vehicle is defined as a vehicle powered exclusively by an electric motor, with its traction energy supplied exclusively by a traction battery installed in the vehicle. It should also have an electric regenerative braking system, converting kinetic energy into electrical energy during braking.

It is important to note that the tax deduction is available only once to each individual taxpayer for the purchase of an electric vehicle. Furthermore, the deduction is limited to the interest payments on the loan up to Rs 1.5 lakh per annum. Any interest payments exceeding this limit cannot be claimed for deduction under Section 80EEB.

How to Avail Tax Benefit on Electric Vehicle Loans

To avail the tax benefit under Section 80EEB, individuals need to follow a few steps and gather the necessary documents:

  1. Obtain the interest paid certificate from the financial institution or NBFC.
  2. Keep tax invoices and loan documents ready for reference.
  3. File the Income Tax Return (ITR) and claim the tax deduction while providing the relevant details and supporting documents.

It is advisable to consult with a tax expert or financial advisor to ensure that all the required documents are in order and the tax benefit is claimed correctly.

Promotion of Electric Vehicle Mobility Solutions in India

The government of India has been actively promoting the adoption of electric vehicles to reduce pollution and combat climate change. Several initiatives and schemes have been introduced to incentivize the purchase of electric vehicles and create an infrastructure conducive to electric mobility. One such initiative is the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

FAME Scheme: Incentives for Electric Mobility

The FAME scheme, launched by the government of India, stands for Faster Adoption and Manufacturing of Electric Vehicles. It is an incentive scheme aimed at promoting the adoption of electric and hybrid vehicles in the country. The scheme offers financial incentives for the purchase of electric vehicles and the development of electric transportation and charging infrastructure.

Under the FAME scheme, incentives are available for electric two-wheelers, electric three-wheelers, and electric four-wheelers. The scheme provides subsidies for the purchase of electric vehicles, reducing the upfront cost for consumers. The Phase II of the FAME scheme started on April 1, 2019, and will continue until March 31, 2022. It has a total outlay of Rs 10,000 crores for a period of three years.

State Government Incentives

In addition to the FAME scheme, several state governments in India have also introduced their own incentives and subsidies to promote the adoption of electric vehicles. State-specific incentives vary and can include additional subsidies, exemptions from road taxes, and reduced registration fees for electric vehicles.

For example, some states like Maharashtra, Delhi, Gujarat, Assam, Bihar, and West Bengal offer maximum subsidies ranging from Rs 1 lakh to Rs 2.5 lakh on the purchase of electric vehicles. Additionally, states like Rajasthan, Andhra Pradesh, Karnataka, Madhya Pradesh, Telangana, Tamil Nadu, Uttarakhand, Punjab, and Uttar Pradesh exempt electric vehicles from paying road taxes.

It is important to check the specific incentives and subsidies provided by your state government to maximize the benefits while purchasing an electric vehicle.

Why Invest in Electric Vehicle Insurance?

As the popularity of electric vehicles increases, it is essential to consider insurance coverage for these vehicles. Electric vehicle insurance offers several benefits and protections for both the owner and the vehicle itself. Here are some key reasons to invest in electric vehicle insurance:

Specialized Coverage

Electric vehicles require specialized components and technology, which can make them more expensive to repair and replace compared to traditional gasoline-powered vehicles. Electric vehicle insurance policies are designed to provide coverage for these unique features, ensuring that owners are financially protected in case of accidents or damages.

Coverage for Battery Damage and Charging Equipment

Electric vehicle insurance policies typically cover damages to the vehicle's battery, which is a crucial and expensive component of an electric vehicle. Additionally, coverage for charging equipment is also available under these policies, providing protection against damage or theft of charging stations or cables.

Peace of Mind

Having electric vehicle insurance offers peace of mind to owners, knowing that they are protected against potential financial risks. In case of accidents, theft, or damages, owners can avoid significant repair or replacement costs, ensuring that their investment in an electric vehicle is safeguarded.

Additional Benefits and Discounts

Some insurance providers offer additional benefits and discounts for electric vehicle owners. These can include discounts for installing charging stations at home, coverage for battery replacement costs, and other incentives to promote sustainable practices and ownership of electric vehicles.

It is crucial to compare insurance policies and providers to find the best coverage and benefits for your electric vehicle. Consult with insurance experts and explore different options to make an informed decision.

Conclusion

Electric vehicles not only contribute to a cleaner environment but also offer attractive tax benefits for individuals in India. By taking advantage of Section 80EEB of the Income Tax Act, individuals can avail tax deductions on the interest paid for loans taken to purchase electric vehicles. It is important to meet the eligibility criteria and fulfill the conditions to claim the tax benefit. Additionally, the government's initiatives, such as the FAME scheme, further promote the adoption of electric vehicles by providing financial incentives and support for the development of electric mobility infrastructure.

Investing in electric vehicle insurance is also advisable to protect your investment and ensure financial security. Electric vehicle insurance policies offer specialized coverage for the unique features of these vehicles, providing peace of mind in case of accidents or damages.

As electric vehicles become more prevalent on Indian roads, it is crucial for individuals to consider the long-term benefits of owning an electric vehicle, both in terms of environmental sustainability and financial advantages. By going green and taking advantage of the tax benefits and incentives, individuals can contribute to a greener future while saving money. Consult with tax experts, financial advisors, and insurance professionals to make informed decisions and maximize the benefits of owning an electric vehicle.

 

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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