Electric vehicle should be purchased for business use or personal use?

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Electric vehicle should be purchased for business use or personal use?

One of the major benefits by the Budget – 2019  (Part – II) is tax incentives for purchase of electric vehicle. The benefit is offered by section 80EEB which reads as under:

  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.’.

One need to carefully note sub section 4 to section 80EEB which reads that

  1. 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

 It means that if interest deduction is claimed in other section also, then no deduction u/s 80EEB is allowable. Interest deduction u/s 80EEB is available only if it is not claimed as deduction under any other provision of the I.T. Act.

With above background, question arises, whether the electric vehicle should be purchased for business use or personal use?

If the electric vehicle is treated as personal asses then the taxpayer will be able to claim the benefit of deduction u/s 80EEB as interest is not allowable as deduction while computing income from business and profession. But, in such cases, the taxpayer will also lose the benefit of depreciation available to the taxpayer as it is available only if the asset is used for the purpose of business.

If taxpayers wish to claim any deduction towards depreciation, then the assets has to be used for the purpose of business. If asset is used for the purpose of business then interest payment would also be business expenditure and would be eligible for deduction while computing the business income. In short, if the vehicle is used as business asset then no deduction u/s 80EEB would be admissible.

Undeniably, the benefit of depreciation is broader and better benefit as it results in deduction towards the entire cost of vehicle over different years whereas interest deduction is available only towards interest which is very limited i.e., only certain percentage of the loan amount .

Considering both the situation, it appears more beneficial if the vehicle is purchased for business purpose rather than personal purpose. However, the situation is different for taxpayer covered by presumptive taxation. Taxpayer can refer another interesting write up on the issue at –

https://thetaxtalk.com/2019/07/10/conflicting-issue-presumptive-scheme-of-taxation-and-deduction-u-s-80eeb-towards-purchase-of-electric-vehicle/

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