Buy an Electric Vehicle and Claim Exemption under Income Tax Act

To promote electric vehicles and also to tackle the increasing pollution the Government announced an incentive by claiming deduction in the Income Tax Act which was announced in the Budget 2019 by our Hon'ble Finance Minister Smt. Nirmala Seetharaman.

During her budget speech, the Finance Minister announced that vehicles with advanced battery and registered e-vehicles will be incentivised under the scheme.

A new section 80EEB was inserted from AY 2020-21 to claim an exemption on the interest portion of the loan taken to purchase an electric vehicle.

Electric Vehicle under 80EEB

• A vehicle that is powered “exclusively” by an electric motor whose traction energy is supplied exclusively by a traction battery installed in the vehicle.
• It has such an electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

Therefore deduction is not available for Hybrid vehicles.

Who can claim the deduction?

Only an individual Assessee is eligible for the deduction under section 80EEB of The Income Tax Act.

What is the maximum amount that can be claimed as a deduction?

An Individual Taxpayer who purchases an Electric Vehicle for personal use can claim deduction upto Rs.1,50,000 only on the interest portion of the loan amount under section 80EEB.

An Individual Taxpayer who purchases an Electric Vehicle for Business use can claim deduction upto Rs.1,50,000 only on the interest portion of the loan amount under section 80EEB.

Any interest above Rs. 150,000 can be claimed as a Business expense.

Important points to be considered to claim deduction

1. The electric vehicle should be registered in the name of the taxpayer or in the name of the Business.
2. The loan availed for the purchase of the electric vehicle should be from a Registered Banking or Non Banking Financial Sector.
3. The loan must be sanctioned anytime during the period starting from 1 April 2019 till 31 March 2023.
4. The interest can be claimed only upon the showcase of the Interest paid Certificate from the registered Bank or Non Banking Sector.