How much income tax you can save on buying an electric car in India (2022)? Slowly but surely, electric vehicles and hybrid vehicles are gaining traction in India over the last few years. And the government too is promoting them by offering tax benefits via electric vehicle tax exemption in India (2022).
Under Section 80EEB, you get tax relief on electric vehicle purchases. If you buy an electric vehicle (2-wheeler or 4-wheeler), then you get a tax exemption on electric vehicle loans.
So What is section 80EEB that gives tax benefit on Electric Vehicle Purchase Loan?
Tax Benefit under Section 80EEB for EV Purchase Loan
Under the new Section 80EEB, a person buying an electric vehicle in loan can claim a deduction in respect of the interest payable on the electric car loan amount or Rs 1.5 lakh, whichever is lesser.
So the answer to the question of how much tax deduction is available for the purchase of electric cars, the answer is actual interest amount or Rs 1,50,000 (whichever is lower).
Let’s take an example to see how this 80EEB deduction works.
Suppose you go for an electric car with a cost of about Rs 18 lakh. You put in Rs 3 lakh from your pocket as a downpayment and for the rest, you take a loan of Rs 15 lakh, at an interest rate of 11 % for a tenure of 5 years. Your monthly EMI will be Rs 32,613 of which Rs 18,863 will go towards principal repayment and the remaining Rs 13,750 will go towards the interest payment. So this annual interest component of up to Rs 1.5 lakh per financial year is available for tax deductions.
Is repayment of the principal amount of the electric car loan also available as a deduction under section 80EEB? The answer is No. Only deduction of interest part of EV loan is available as deduction under this section.
Also, this tax exemption is available only once under section 80EEB, which means that the buyer can get tax exemption on the purchase of an electric car for only the first time.
Do remember that the deduction is available for a loan taken exclusively for the purpose of purchasing an electric vehicle in India. So it seems that it has to be a 100% electric vehicle and not a hybrid car which derives some power also from petrol/diesel as well. And what if you don’t want to go for a 4-wheeler but a 2-wheeler? No worried. The deduction under Section 80EEB is available for 4-wheel vehicles as well as electric 2-wheelers.
Also, to be eligible for this tax exemption, the electric vehicle loan must be taken from a financial institution between April 2019 and March 2023. But you can claim 80EEB every year till your loan is repaid.
This deduction is in addition to any subsidy that the central or state governments are already offering. So if you were to ask me as to Section 80EEB deduction is available for how many years, then the answer is till you completely pay off your EV loan.
This incentivization of electric vehicles is part of the government of India’s FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme for the promotion of electric mobility in the country. Do check this link for more details.
The rising petrol and diesel prices are gradually pushing more and more people to look at electric vehicles as viable alternatives. This is one of the reasons which will make buyers switch to electric vehicles in the long run. Though it’s still early days in India, there are a growing number of electric vehicles in India. Many prominent international brands and models in the EV space, like Tesla EV, Nissan EV, Renault EV, BMW EV, etc. will soon enter India.
Tax exemption is one of the benefits of buying electric vehicles in India.
But should you take a loan to purchase electric vehicles because of tax deduction?
All loans are loans whether there are any tax deductions or not. Borrow only when you really need to. So don’t take an EV loan in India just because of tax deduction. Take a loan if you want to purchase an electric vehicle and you don’t have the full amount to buy it yourself. That way, you can benefit from the electric vehicle tax deduction.
That was all about the Electric vehicle 80EEB Section.
I hope you now have enough idea about how you can get a tax exemption of up to Rs 1.5 lakh on the purchase of an electric car in India on loan. So if you buy an electric car in India on loan, you can take advantage of this electric vehicle loan tax exemption easily.