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Tax Benefits Of Buying An Electric Vehicle

5paisa Research Team

Last Updated: 10 Jun, 2024 04:54 PM IST

TAX BENEFIT ON ELECTRIC VEHICLES
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What are the tax benefits of buying an electric vehicle? Now that you are here in this post, let's learn everything about tax electric car tax benefits associated with your EV purchase. 

We already know that EVs are a revolutionary hot topic in today's automobile industry for their tech-advanced systems. Unlike conventional gasoline vehicles, they are the new ray of hope for sustainable car enthusiasts. In India, vehicles get newer opportunities to enjoy tax benefits for purchasing electric cars. This all-encompassing post will give you an overview of the tax benefits of electric cars. So, let's check the points from below.

How Can You Save Tax On Electric Vehicles?

Nirmala Sitharaman (the Finance Minister) already confirmed it during the 2023's Union Budget. So, car lovers who plan to purchase electric cars can save tax on electric vehicles. The minister made EVs or electric vehicles more affordable in a country like India. It was made to extend the battery for one more financial year.

Electric Car Tax Exemption Section

Section 80EEB of the Income Tax Act lets EV owners claim tax savings of up to ₹1.5 lakh on the interest paid on the EV loan. But note that there are certain restrictions and conditions pertaining to the loan issuer and EV in the 80EEB deduction. An electric car owner can claim the tax deduction benefits after the approval of the loan, which is between January 1 and March 31. 

Eligibility Criteria for Section 80EEB for Getting Tax Benefits on EV

Someone who has applied for a loan to buy an EV might claim the deduction under the tax law. The eligibility criteria to claim include:
• An eligible taxpayer must be an individual (AOP, HUF, a Partnership firm, or a company). 
• The loan must be utilised to buy the EV
• Loans from approved NBFCs and banks are only considered for rebates
• The loan must be applied from April 1, 2019, to March 31, 2023

Features of 80EEB Deduction to Avail Income Tax Benefit on EV

Section 80EEB offers electric car tax relief. Here's the list of benefits and top features of Section 80EEB:
• One should opt for a loan from a specified NBFC or bank
• Loan sanctions are only applicable between April 1, 2019 and March 31, 2023
• Deductions under the section are available for people, with a maximum of Rs. 1.5 lakhs
• This deduction is for purchasing electric vehicles
• No road tax
• Delhi and other states have a lower registration charge
• Electric motors have less than 20 moving parts, so reduced wear and tear
• No greenhouse emission 
• Minimal maintenance
• GST rate reduced from 12% to 5%.
• Upon RC renewal (after 15 years), the tax will be applied (however, electric vehicles are exempt from green taxes)

Terms & Conditions for Claiming Under 80EEB Deduction Tax Benefit on EV

For business usage, individuals can get the tax benefit for electric cars. The person can claim ₹1.5lakhs under the law. In case of interest payments above the given one, a claim can be made as the business cost. You can claim it as a business expense by registering the car under your name. 
For personal usage, the deduction might facilitate individuals to claim the interest on the car loan. Note that the individual taxpayers must obtain the certificate for interest paid and keep required documents like loan documents and tax invoices. 
• The deduction cannot be claimed by people who have applied for a loan for the EV purchase 
• The loan for purchasing the EV must be from a financial institution like a bank or an NBFC (sanctioned from April 1, 2019, to March 31, 2023)
• The maximum amount is ₹1.5lakhs
• This deduction cannot be claimed by companies, Hindu Undivided Families, firms, or other entities
• A taxpayer shouldn't have any existing vehicle registered under their name 
• The deduction can be claimed for interest on the loan for purchasing EVs (note that the principal amount isn't eligible for deduction)
• Individuals who claim tax electric car tax benefits under this section might not be eligible for deductions under other sections

Electric Vehicle Tax Benefits in India

For people who wish to purchase an EV, the Indian government has launched the Section 80EEB. It is designed to provide attractive tax incentives. The EV owners can get a tax exemption of ₹1.5lakhs of interest paid on their loan amount.

Other Monetary Benefits of Electric Vehicles

Section 80EEB offers a wide range of benefits to prospective EV owners. You can consider learning about the financial benefits of the given points. On that note, here's the list of other financial electric car tax benefits you can get alongside the tax benefit:
• Vehicle owners don't need to pay road tax
• Citizens of Delhi (and other specific cities) need to give a lower registration charge
• The GST rate is reduced from 12% to 5%.
• Upon RC renewal (after 15 years), a certain tax amount is applied (however, electric vehicles are exempt from green taxes)

Does EV Car Needs Car Insurance?

An electric car insurance policy is compulsory. You can get coverage against damages to the EV by opting for the insurance policy. 

Why Should You Insure an Electric Vehicle?

Getting an insurance policy for your electric car is crucial for different reasons. It protects your EV and its components. Besides, getting insurance is important during unforeseen incidents such as theft, accident, and other damage. In addition, a policy offers coverage aligning with the specified requirements of owning a vehicle. Your insurance coverage might also include coverage during risks associated with the EV's system. 

Conclusion

So, this post has explained everything about the electric vehicle tax benefits. Now, you understand why it is important to get insurance for your electric vehicle. You have also learned the features of Section 80EEB, the financial tax benefits of electric cars, and other things. You can now find the right electric vehicle on the market.

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Frequently Asked Questions

Several considerations are there to keep in mind while buying an electric vehicle. That includes the vehicle's compatibility with regular commutes, its accessibility for charging infrastructure, price, and more. 

Never forget to assess the battery life and quality. You also need to ensure that the car comes with a warranty for the long-term tax benefits of electric cars. In addition, you also need to look for faster charging. 

Yes, you need to give proof of the benefit out of 80EEB while claiming your tax deductions. Section 80EEB offers deductions on your interest paid on loans. You can get the benefit by submiting your relevant documents that support your claim. In addition, you also need to comply with documentation requirements to ensure the authenticity of your claim and eligibility.

Individual taxpayers might claim deductions of up to ₹1.5 lakh on interest of the loan to buy the electric car. That's what the Section 80EEB states. One should note that every taxpayer may claim the deduction once annually.

With the emerging prominence of EVs, the car industry expects a decrease in the GST rate. That's for components and a FAME (or Faster Adoption and Manufacturing of Electric Vehicles) subsidy scheme as of Budget 2024.

Yes, you can claim a deduction of ₹1.5 lakhs interest payments as far as the Section 80EEB is concerned. The individual taxpayer might buy the EV for business or personal usage. The deduction might facilitate people with an EV for personal usage to claim the interest on the car/bike loan. 

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