Deduction in the policy of purchase of an electric vehicle

Taxation
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March 17, 2022

The government has announced an incentive scheme for purchasing electric vehicles. While addressing everyone in the budget speech, the finance minister has stated that advanced technology batteries and registered e-vehicles will be encouraged under the scheme. Therefore, a new section 80EEB has been introduced, allowing a deduction from total income for interest paid on loan taken by an individual from any financial institution to purchase electric vehicles from the A.Y. 2020-21.

Eligibility criteria
Deduction under section 80EEB is obtainable only to individuals. In Addition, this deduction is not available to any other taxpayer like HUP, AOP, a company, partnership firm or any different kind of taxpayer.

Amount of deduction
The deduction for interest payment should not exceed ₹1,50,000 under the scheme. It shall be allowed in computing the total income of an individual for the period beginning from A.Y. 2020-21. The vehicle can be used for personal or business purposes.

Deduction in case of personal vehicle
An individual having an electric vehicle for personal use can claim deduction under section 80EEB for the interest paid on the vehicle loan.

Deduction in case of business vehicle
In case of business use also, an individual can claim the deduction of up to ₹1,50,000 under section 80EEB. Moreover, any interest payments above ₹1,50,000 can be declared as a business expense provided that the electric vehicle should be registered in the name of the owner or business enterprise.

Conditions for claiming the deduction

An electric vehicle must be purchased with a loan from a non-banking financial company (NBFC) or a financial institution.
The loan amount must be sanctioned between 1 April 2019 and 31 March 2023.
In the absence of any specific instructions, the deduction is available to residents and non-residents.
Once a deduction is claimed under Section 80EEB, the deduction cannot be claimed under any other provision of the act.
Deduction under section 80EEB is available for 4-wheeled, 3-wheeled and 2-wheeled vehicles.
“Electric vehicle” is defined as a vehicle which is powered by an electrical motor whose traction energy is supplied exclusively by traction battery installed within the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy.

Promotion of electric vehicle mobility solution
For the purposes of promoting electric mobility in India, the union council of ministers has approved phase-II of electric vehicles scheme. The faster adoption and manufacturing of electric vehicles (FAME) scheme is a government incentive program. This program promotes electric vehicles in India. Ultimately, the scheme offers financial incentives to encourage the purchase of electric vehicles as well as the development of electric transportation and charging infrastructure. Phase-II of this project started on 1 April 2019 and will be completed by 31 March 2022. A phase-II is a more comprehensive version of phase-I. There is a total outlay of ₹10000 crores for phase II over a 3-year period from 1 April 2019 until 31 March 2022.

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