Key issues of section 80EEB- Purchase of Electric Vehicle

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Key issues of section 80EEB- Purchase of Electric Vehicle

To achieve the mission of Go green and take care of environment, one of the first key innovative measure which will benefit numerous taxpayers is proposed in this budget in the form of section 88EEB i.e., purchase of Electric vehicle will now offer tax benefit.

The meaning of Electric vehicle is not restricted to Car alone but all electric vehicles are covered. Even two wheeler purchased will offer the tax benefit to the taxpayers.

The most important part, the benefit is available only to an Individual.

The businessmen can claim interest paid towards any business assets purchased as deduction against its income. However, the same benefit can now be availed by non – business individual taxpayer also like Salaried taxpayers, pensioners, Taxpayer with rental or interest income alone.

Use of the vehicle by the taxpayers is not a condition for deduction u/s 80EEB. Even vehicle taken for the use of relatives, other person can offer tax sops in such cases.

HUF cannot take the benefit of section 80EEB. Similarly, Firm, Company, AOP, LLP, etc also cannot take the benefit of section 80EEB.

The deduction is available only if the vehicle is purchased by availing loan between 1st day of April, 2019 and ending on the 31st day of March, 2023.

Furhter, all loans like one taken from friends, employer, credit society etc are not eligible for income tax benefit. Only if the loan is taken from “financial institution” then only tax benefit can be claimed.

“Financial institution” for above deduction means a

  1. banking company to which the Banking Regulation Act, 1949 applies, or
  2. any bank or banking institution referred to in section 51 of that Act and
  3. includes any deposit taking non-banking financial company or
  4. a systemically important non-deposit  taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B

There is no restrictions on the number of vehicles on which deduction can be claimed. Even if more than one vehicle is purchased, then also deduction can be claimed by individual taxpayers.

The memorandum explaining the logic behind section 80EEB as incorporated in the memorandum to the Finance bill is reproduced hereunder:

With a view to improve environment and to reduce vehicular pollution, it is proposed to insert a new section 80EEB in the Act so as to provide for a deduction in respect of interest on loan taken for purchase of an electric vehicle from any financial institution up to one lakh fifty thousand rupees subject to the following conditions:

  1. the loan has been sanctioned by a financial institution including a non-banking financial company during the period beginning on the 1st April, 2019 to 31st March, 2023;
  2. The assessee does not own any other electric vehicle on the date of sanction of loan.
  3. It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-2021 and subsequent assessment years.

The relevant part of section 80EEB as per Finance Bill  -2019 (part II) is reproduced hereunder:

  1. In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of purchase of an electric vehicle.
  2. The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April, 2020 and subsequent assessment years.
  3. The deduction under sub-section (1) shall be subject to the condition that the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April, 2019 and ending on the 31st day of March, 2023.
  4. Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.
  5. For the purposes of this section,––
    (a) “electric vehicle” means a vehicle which is powered exclusively 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 vehicle kinetic energy into electrical energy;
    (b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Act and includes any deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company as defined in clauses (e) and (g) of
    Explanation 4 to section 43B.’.

This is to give just the preliminary information. There are multiple issues involved in the deduction. I will cover it in my next article on the same issue.

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