TAX BENEFITS ON ELECTRIC VEHICLES AS PER BUDGET, 2019

As a follow-up to the FAME scheme (Faster Adoption and Manufacturing of Hybrid & electric vehicles Scheme) launched in 2015 to promote EVs in the country, the government announced its second phase, i.e. FAME-2 on 1 April, 2019, with an outlay of Rs 10,000 Crore.

Under the second phase of FAME India Scheme, subsidy on EVs is given to three and four wheelers for commercial and fleet applications providing affordable and environment-friendly public transportation. However, in two wheelers it is also extended for personal usage.

As per budget 2019, finance minister Nirmala Sitharaman announced deduction in respect of interest paid on loan taken for the purchase of electric vehicle. Hence, a new section 80EEB of The Income Tax Act has been introduced.

Features of Section 80EEB

  • The deduction under this section is available only to individuals. This deduction is not available to any other taxpayer. Thus, it would not be available to HUF, AOP, Partnership firm, a Company, or any other kind of taxpayer.
  • Kindly note that use of the vehicle by the taxpayers is not a condition for availing the deduction. A vehicle taken for the purpose of usage by a family member, relative, or any other person, may avail the benefit.
  • Therefore, a deduction of upto Rs. 1.5 lakh is available under section 80EEB of the Income Tax Act on interest paid on loans to buy electric vehicles over the entire loan period.
  • An individual taxpayer may have an electric vehicle for personal use or for business use. This deduction would facilitate individuals having an electric vehicle for personal use to claim the interest paid on the vehicle loan. However, businessmen can claim interest paid towards any business assets purchased as deduction against its income.

 Conditions for claiming the deduction

  • The first and the foremost condition is that the loan must be taken from a financial institution or a Non-banking Financial Company for purchasing an electric vehicle.
  • Here FI/NBFC must be :
  • A banking company to which the Banking regulation act of 1949 is applicable.
    • A bank or banking institution referred to in section 51 of the Income Tax Act, 1961.
    • This includes any deposit taken from a non- financial banking company. It may even be a systematically important non-deposit accepting non-financial banking company
  • The loan must have been taken during the period starting from 1 April, 2019 till 31 March, 2023.
  • The term electric Vehicle is defined as a vehicle powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle only. It also talks about the vehicle’s electric regenerative braking system, which while applying to brake, will convert the vehicle’s kinetic energy into electrical energy.
  • The assessee who has availed the loan for the purchase of an electric vehicle must not own any other electric vehicle on the date of sanctioning the said loan.
  • The section also mentions that where a deduction is allowed for any interest under this section, no other deductions with respect of such interest will be permitted under any other provision of the Income Tax Act for the same year or any other assessment year.

Benefits to Manufacturers

  • With the announcement of exemption of custom duty on lithium-ion cells, it would help lower the cost of lithium-ion batteries in India as they are not produced locally.
  • Makers of components ; such as solar electric charging infrastructure and lithium storage batteries and other components will be offered investment linked income tax exemptions under Section 35AD of the Income Tax Act, 1961 and other indirect tax benefits.

And to become a global hub for electric vehicle manufacturing, the government has lowered the GST rate from 12% to 5%.

The section 80EEB deduction will be over and above the regular deductions offered under the sections such as listed below :-

  • Section 80C towards LIC/PPF etc
  • Section 80D towards medical insurance and health checkup

Also, if you are looking for some tax benefits relating to housing as announced in budget 2019 : you may refer my article by clicking on link below :-

Affordable housing : A benefit from budget, 2019 (click here to read)


Author : Shalini Passi (Click Here to View Profile)