Section 80EEB: Electric Vehicle Deductions

As per the directions of the Government of India, the usage of e-vehicles and advanced vehicle batteries are incentivised under the FAME India Scheme. With the belief that pollution should never be the price of prosperity, the Budget of 2019 has incorporated Section 80EEB into the Income Tax Act of 1961. This article mentions the various aspects of Section 80EEB. The new section will take effect from 1st of April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

Overview

In order to promote the usage of electric vehicles in India, the Union Budget of 2019 proposed to incorporate a brand new section called Section 80EEB in the Income Tax Act of 1961. With the inclusion of this Section, the Government of India has offered direct tax benefits to many individual taxpayers, which is a significant boost for electric vehicles. Section 80EEB of the Income Tax Act was introduced with the Finance Bill of 2019 with the aim to improve environmental conditions and to reduce vehicular pollution throughout the country considerably. This new section offers a deduction of up to INR 1.5 Lakhs with respect to the interest on the loan taken by an individual for the purchase of an electric vehicle. Under certain conditions, this Section will be applicable for loans taken from any financial institution.

FAME India II

The Union Cabinet passed the Second Phase of the FAME India Scheme in order to promote the usage of electric mobility in the country. The Scheme is an incentive-based scheme by the Indian Government and offers financial incentives while purchasing electric vehicles. It also aims to bring about public electric transportation and charging infrastructure for the same. Under this scheme, incentives are available for every kind of electric vehicle. This phase of the FAME India Scheme began in April 2019 and is estimated to be completed by March 2022. This is an expanded version of the first phase and has a total outlay of INR 10,000 Crores spread over 3 years.

Eligibility

It should be noted that Deductions under Section 80EEB of the Income Tax Act will only be applicable to an individual. This means that Hindu Undivided Families, Firms, Companies, Associations of Persons, Limited Liability Partnerships and any other kind of entity cannot avail the benefits offered under this new section.

Claim Section 80EEB Deductions

The following conditions have to be fulfiled in order to claim deductions up to INR 1.5 Lakhs in Section 80EEB of the Income Tax Act:

• The Section defines the term Electric Vehicle as a vehicle powered exclusively by an electric motor. It also mentions that the vehicle's traction energy is supplied by a traction battery installed in the vehicle only. Additionally, the Section also talks about the vehicle's electric regenerative braking system, which while applying to brake, will covert the vehicle's kinetic energy into electrical energy.
• The loan for the purchase of the electric vehicle has to be sanctioned by a Financial Institution or a Non-Banking Financial Company after the 1st of April, 2019, but before the 31st of March, 2023.
• 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.

Additional Incentives

For the very first time, the Government has announced additional incentives to an individual if an electric vehicle is purchased under the following conditions:

• The term Electric Vehicle is not confined to a car alone. This term, in this context, means every electric vehicle. Even the purchase of 2-wheelers under a loan will give their respective taxpayers the chance to avail these benefits under the new Section.
• A businessperson may claim deductions towards the interest paid on any loan availed for purchasing business assets against its business income. There were no deductions or benefits available to a salaried taxpayer. However, now, individual taxpayers such as salaried taxpayers, pensioners, taxpayers with rental or interest income may also avail the benefits of deductions offered under Section 80EEB.
• It is not essential for the assessee to use the vehicle for availing the deduction. A vehicle taken for the purpose of usage by a family member, relative, or any other person, may avail the benefits.
• It should be noted that no deductions will be applicable if the loan for the purchase of the electric vehicle was taken from friends, employer, credit society, etc. Deductions will only be applicable if the loan is taken from a Financial Institution or Non-Banking Financial Institution. This means that FI/NBFC must be:
  • A banking company to which the Banking Regulations Act of 1949 is applicable.
  • A bank or banking institution referred to in Section 51 of the Income Tax Act of 1961.
• The criteria for eligibility include any deposit taken from a Non-Financial Banking Company. It may even be a systematically important non-deposit accepting Non-Financial Banking Company as defined in Clause (e) and Clause (g) of Explanation 4 to Section 43B of the Banking Regulations Act of 1949.

Double Deduction

• Interest Deduction under Section 80EEB may be availed only if an assessee raises no other claims for deduction under any other provisions of the Income Tax Act. Taxpayers who earn business or a professional income may claim deductions towards the interest on the purchase of any business assets against its regular business income. As a result, no benefits of deduction under Section 80EEB will be applicable to such taxpayers.
• If the electric vehicle is used as a personal asset, then the taxpayer may claim the benefits of deduction under Section 80EEB. Here, the interest is not allowable as deductions while computing income from the business. In such cases, the taxpayer will be required to forego the benefits of deduction towards depreciation as it can only be availed if the asset is used for business purposes.
• It is always recommended to avail the deductions towards depreciation as it offers a better and broader benefit. This results in deduction towards the entire cost of the vehicle over different years. On the other hand, the interest deduction is only applicable to the interest which is limited and is only a certain percentage of the loan amount.