Ways to save tax on an electric vehicle (EV) purchased on loan
Planning to buy an Electric Vehicle (EV) on loan? Check out how you can save taxes on your purchase in this post.
With fuel prices breaching record levels, a rising number of people are planning to switch to Electric Vehicles (EVs) in India.
These environment-friendly vehicles are highly efficient and require less maintenance than fuel-powered vehicles. Moreover, due to the growing popularity of EVs, leading insurers have started offering bike and car insurance for these battery-powered vehicles too.
But while EVs' cost and environmental benefits are well-known, do you know that taking an EV on loan also makes you eligible for tax incentives? Let’s take a look at how you can save tax by purchasing an electric vehicle in India-
Introduction of section 80EEB
The government announced the addition of Section 80EEB to the IT Act in the Union Budget 2019. The new section is exclusively created to incentivize people who purchase an electric vehicle on loan. Under Section 80EEB, interest paid on loan taken for buying an electric vehicle (four-wheeler or two-wheeler) can be claimed as a deduction from AY 2020-21 to AY 2022-23.
The Indian government has already taken several initiatives to encourage electric mobility, such as the FAME subsidy. The introduction of Section 80EEB is another initiative to make EVs more cost-effective for taxpayers to increase their adoption.
Eligibility criteria and maximum deduction under section 80EEB
Tax deduction under Section 80EEB is only available for individuals. Therefore, HUFs, Partnership Firms, Companies, and other taxpayers are not eligible to claim Section 80EEB deduction.
The maximum limit for claiming Section 80EEB deduction is up to Rs. 1.5 lakhs. So, the interest component of the loan taken to purchase an EV is tax deductible up to Rs. 1.5 lakhs. Moreover, individual taxpayers can claim the deduction on EVs purchased for personal or commercial use.
Documents required to claim deductions under section 80EEB
EV owners can only claim tax deductions under Section 80EEB while filing tax returns if they possess the required documents. These documents are-
• Certificate of interest paid on the EV loan from the lender
• Other loan-related documents
• Tax invoice of the EV
Other conditions to claim tax deductions under section 80EEB
Here are some other conditions EV owners should fulfill to claim tax deductions under Section 80EEB-
• The tax deduction is only available for an EV, which the IT Act defines as ‘A vehicle exclusively powered by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of kinetic energy into electrical energy’
• The deduction is only available on loans taken from a bank or NBFC (Non-Banking Financial Institution)
• The loan should be sanctioned between April 1, 2019, and March 31, 2023
Switch to EV to save the environment and save taxes
The introduction of Section 80EEB is an excellent initiative to boost EV adoption in India. If you’re planning to purchase an electric car or bike on loan, ensure that you take maximum advantage of the available deduction to make the purchase more cost-effective.
After purchasing an electric vehicle, you can choose to buy Kotak Car Secure, a comprehensive car insurance policy to give your prized possession added financial protection. Like traditional fuel-powered vehicles, you can also buy bike and car insurance online from us at kotak general insurance for EVs.
Disclaimer: The content provided is for education and informational purpose only, none of the information contained in our blog amounts to any form of opinion or advice. Please go through policy related documents carefully or consult an expert before making any insurance-related decisions.