Tax benefits on electric vehicles in India: All you need to know.By Ruchika Bhagat, ET CONTRIBUTORS Last Updated: Dec 18, 2021, 05:56 PM IST

 

Electric vehicles, or EVs, are not only better for the environment, they are also more efficient than traditional gasoline-powered vehicles. Furthermore, rising petrol and other fuel prices have contributed to many customers' desire to switch to electric vehicles. EVs are not only cost-effective, they also have tax advantages in India.

Cars for personal use are considered luxury products under Indian tax laws, therefore salaried professionals do not receive any tax benefits on auto loans. In order to encourage the use of electric vehicles in India, the government created a new section that exempts EV owners from paying taxes.

In India, there is no shortage of electric vehicle models, and with increased sales, various manufacturers are planning to introduce new models in the coming year.

Tax deductions on loan for EVs

When paying off an EV loan, a total tax exemption of up to Rs 1,50,000 is available under section 80EEB. This tax break is applicable for both four-wheeler and two-wheeler electric vehicle purchases.

Eligibility Criteria

Individuals are the only ones who can take advantage of this deduction. No other taxpayer is eligible for this deduction. As a result, you cannot claim any advantage under this provision if you are a HUF, AOP, Partnership firm, company, or any other type of taxpayer.

Following are the conditions that apply to Section 80EEB

This exemption is only available once to each person. This means that only someone who has never owned an electric vehicle before is eligible for Section 80EEB loan tax relief.

This exemption is limited for persons who are financing an electric vehicle. The EV should be financed by a loan from a financial institution or a non-banking financial company (NBFC).

Payoffs of any EV loans accepted between April 1, 2019 and March 31, 2023 are eligible for 

tax savings under the section.

From FY 2020-2021 onwards, tax incentives under Section 80EEB are available.

People who choose to acquire an EV on loan will be eligible for a tax deduction of Rs 1.5 lakh on interest paid on the loan amount under Section 80EEB. For salaried professionals, this tax savings makes buying an EV as their next vehicle an appealing prospect.

How India loads up against other nations in terms of EV tax incentives

In order to meet its commitments under the Paris Climate Accords, the Centre has taken initiatives to promote the use of electric vehicles and has pushed state governments to incentivize the purchase of electric vehicles. In August, the Ministry of Road Transport and Highways (MoRTH) declared that electric vehicles will be exempt from "fees for the purpose of issuing or renewing registration certificates.

In previous years, the government had cut the GST component on electric vehicles to 5%.Four-wheel EVs can earn a maximum subsidy of Rs 1.5 lakh under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) programme, while two-wheelers can get a subsidy of up to 40% of their purchase price.

State governments are also providing incentives and subsidies on the purchase of electric vehicles that are separate from those granted under FAME-II.

On electric automobiles and SUVs, Maharashtra offers a maximum subsidy of Rs 2.5 lakh, while Delhi, Gujarat, Assam, Bihar, and West Bengal offer maximum subsidies of Rs 1.5 lakh. A subsidy of Rs 1 lakh is also available in Odisha, while a subsidy of Rs 60,000 is available in Meghalaya. Subsidies ranging from Rs 5,000 to 30,000 are available in Delhi, Maharashtra, Meghalaya, Gujarat, Assam, Bihar, West Bengal, Rajasthan, and Odisha for the purchase of electric two-wheelers.

Most of these states also exempt electric vehicles from paying road fees as part of their EV policy. Rajasthan, Andhra Pradesh, Karnataka, Madhya Pradesh, Telangana, Tamil Nadu, Uttarakhand, Punjab, and Uttar Pradesh all exempt EVs from paying road taxes completely, however they do not provide any direct or indirect incentives.

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