TAX EXEMPTION ON PURCHASE OF ELECTRIC VEHICLE By: Manjiri S. Gupta

(The author is an Article Assistant at SSRPN & CO. Nagpur. She can be approached at cassrpn@gmail.com)

A new Section 80EEB has been inserted by the government to allow for an interest deduction from AY 2020-21(FY 2019-20). Section 80EEB was introduced by the finance minister Nirmala Sitaraman in the Union Budget 2019 with an objective to combat the rising pollution, by way of offering additional tax benefits on the purchase of Electric Vehicle.

As per Income Tax Act 1961, “Electric Vehicle” means vehicle which is powered exclusively by an electric motor whose traction energy is supplied solely by traction battery installed within vehicle and has such electric regenerative braking system, which throughout braking provides for the conversion of vehicle kinetic energy into electrical energy.

According to Section 80EEB, an individual can avail deduction upto Rs. 1.50 Lakhs on interest payment of loan taken for purchase of electric vehicle or actual interest paid, whichever is lower. It must be noted that the deduction is available for interest amount and not for principal amount. This deduction will facilitate individuals who are owing an electric vehicle for personal use. If the vehicle is meant for business use, then assessee can still claim a deduction upto Rs. 1.50 Lakhs under Section 80EEB. However any interest payment made above Rs. 1.50 Lakhs can be claimed as a business expense.

Eligibility:-

Under this section only individuals are eligible to claim deduction. Thus, HUF, AOP, Partnership firm, a company, or any other kind of taxpayer cannot claim any benefit under this section.

Conditions to claim deduction:-

1. Loan must be sanctioned between 1^st April 2019 to 31^st March 2023.

2. The loan must be taken from a financial institution or a non-banking financial company.

3. Loan must be taken only for the purchase of Electric Vehicle.

4. The assessee should not own any other electric vehicle on the date of sanction of loan.

5. Only interest amount paid on vehicle loan is exempted under this section.

6. The assessee can claim a maximum amount of Rs. 1.50 Lakhs deduction under this section.