Conflicting issue: Presumptive scheme of taxation and deduction u/s 80EEB towards purchase of electric vehicle

Can Individual taxpayer covered by presumptive tax scheme avail any tax benefit u/s 80EEB for purchase of electric car?

New Law means new set of disputes, litigation, interpretation and arguments. No matter how much care is taken in drafting the law, new issues are going to emerge in every provision. One such is new born proposal which grants tax sops u/s 80EEB for purchase of electric vehicle.

First let us know more about section 80EEB.

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 most important part, the benefit is available only to an Individual. 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 1^st day of April, 2019 and ending on the 31^st day of March, 2023.

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.’.

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.

The issue now emerges is whether the person option for presumptive scheme can avail deduction u/s 80EEB.

The provision for presumptive taxation u/s 44AD, 44ADA & 44AE duly incorporate one common clause which says that

“Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed.”

One can easily conclude that the Derpecaiton cannot be further claimed by the taxpayer in such case. Now, whether interest will be allowed. The provision of presumptive taxation conveys that “all the deduction is presumed to have been allowed”. For sure, interest is the part of the business expenditure and so it will be presumed that the same has been granted under section 36 and resultantly no deduction would be available u/s 80EEB as it sub section 4 reads that

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.

No preference or choice is given to the assessee. On the one side, presumptive scheme presumed that interest is deemed to have been allowed, section 80EEB to some extent offer choice to claim by saying that no deduction shall be allowed if assessee has claimed deduction under other provision in the Act.

Effectively, operation of section 44AD, 44ADA, 44AE is a complete code and cannot be in part which means that interest will be presumed to have been allowed. If it is so, obviously no deduction u/s 80EEB will be available to the taxpayer.

What is the remedy in such cases?

Yes, there is a remedy in such cases. Taxpayer need to prove that the vehicle purchased is not for official or business purpose but for personal purpose. If taxpayer is able to establish that it is not for the business covered by presumptive taxation, question of calming deduction u/s 30 to 38 would not arise. In such case, the taxpayer would be eligible for deduction u/s 80EEB.

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