The electric vehicle (EV) sector has seen significant growth in India over the last few years. The data states that over 4.5 lakhs of EVs are sold in 2022. Besides environmental benefits such as reduced carbon emission, EVs have been shown to be more efficient and cost-effective in the long term.
Further, there are tax benefits in terms of a deduction for the interest paid on loans for electric vehicles.
Note: The income tax deduction is available only for loans sanctioned till 31st March 2023. So, it’s the last chance to take the tax benefit on loans towards EVs.
It wouldn’t be an exaggeration to say that electric vehicles are the future of the automobile industry. You may think that purchasing an electric vehicle is costlier than petrol/diesel-run ones, but that is only the initial cost, otherwise, EVs are cost-effective over the lifetime. Furthermore, rising petrol and other fuel prices have encouraged people to switch to electric vehicles. The government is also offering financial incentives to make electric vehicles more affordable.
- The government has introduced a number of programs to promote the production and use of electric vehicles, such as the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme.
- The FAME scheme provides financial incentives to manufacturers and buyers of electric vehicles, as well as support for the development of charging infrastructure, while individual states have developed their own policies to help EVs become a mainstream alternative.
The scheme has been extended till March 2024. FAME-II incentives offered:
Tax Benefit:
If an individual buys an EV (2-wheeler/ 4-wheeler) on loan, then they will be eligible for a maximum deduction of ₹1.5 lakhs u/s 80EEB for interest paid on the loan amount.
This deduction is available only to individual taxpayers, not HUF, companies, or partnership firms.
To be eligible to claim the tax benefit, the following conditions are to be fulfilled:
- A loan must be acquired from a financial institution or specified NBFC.
- A loan has to be sanctioned between April 1, 2019, and March 31, 2023, to purchase an electric vehicle.
- If the individual owns a business (sole proprietorship), and the vehicle is used for business purposes, he or she can claim it as a business expense in their books of accounts. To claim as a business expense, the vehicle has to be registered in the name of the owner or in the name of their business enterprise and claim depreciation as a business expense on the vehicle (asset).
- You cannot claim a deduction twice, if you’re claiming under section 80EEB, the same cannot be claimed as a business expense.
Hence, there are various advantages to purchasing an electric vehicle, including being environmental friendly as well as tax-friendly. If you do buy one, make sure you check on incentive schemes.
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