How to Save Tax on Electric Vehicles (EVs)?

In an effort to boost EV adoption in India, the government is providing incentives to help owners save tax on electric vehicle purchases. For instance, Section 80EEB offers up to ₹1.5 lakh tax deductions on EV loan interest. Additionally, reduced GST rates and exemptions from certain taxes make EVs more cost-effective.

So, if you are using an electric vehicle for business or personal use, this guide explains how you can benefit from the available income tax benefit on EVs. 

Read on!

As per section 80EEB of the Income Tax Act, the interest rate paid for EV loans is eligible for tax deductions of up to ₹1.5 Lakh per financial year. This was introduced in 2020-21 after the finance minister announced tax incentives for EVs in the 2019 Union Budget. 

Section 80EEB was introduced to promote eco-friendly transportation, low pollution, and a green environment.

EVs or electric vehicles are allowed to get tax relief under Section 80EEB. To avail of this tax benefit, EV owners must learn about the following features:

• EVs loans sanctioned between 1st April 2019 and 31st March 2023 can only apply for deductions.
• The loan for EVs should be borrowed from a bank or specified NBFC.
• One can claim the deduction only when the loan amount is utilised entirely to buy an electric vehicle.

The tax benefits for electric vehicles are listed below:

• Electric cars do not need any pollution control certificate (PUC). This document is needed to specify whether diesel and petrol vehicles release any hazardous gases. However, EVs are run by batteries, so there's no need for a PUC certification.
• Tax on EVs will be applied upon renewing the RC after 15 years. EV owners can avail of green tax exemptions.
• The maintenance cost of electric vehicles is lower than that of petrol and diesel vehicles.

Following are the terms and conditions to claim electric vehicle tax exemption under section 80EEB:

• Individuals must claim tax deductions on the car loan interest if the electric vehicle is for personal use. Individual taxpayers must obtain the tax certificate and keep their tax invoices and loan documents handy to claim the deductions.
• People can also claim tax benefits against EVs for business purposes. In this case, they register the car under their company name and claim the deduction as a business cost.
• The maximum tax deduction amount is ₹1.5 Lakh.
• An individual taxpayer claiming this deduction should not have any existing vehicle registered under their name.
• Taxpayers can only claim a deduction for the interest paid against the EV loan, not the principal amount.
• Individuals claiming tax benefits for electric cars under Section 80EEB are not eligible for tax benefits under any other section.

Here are the eligibility criteria to avail income tax benefits on EV under Section 80EEB:

• Individuals paying tax under the old tax regime can only claim deductions under Section 80EEB.
• Partnership firms, HUFs (Hindu Undivided Families), AOPs (Association of Persons), and companies cannot claim this deduction.

EV owners can avail of multiple additional tax benefits under Section 80EEB. They include:

• If you are a citizen of Delhi, you must pay a lower registration fee upon purchasing an EV than buyers from other states.
• Electric vehicle owners can be exempt from road taxes.
• The GST rates on electric vehicles have been reduced from 12% to 5%.

According to the Motor Vehicle Act of 1988, every vehicle in India must be insured with third-party motor insurance. Thus, car insurance is mandatory in India, even for electric cars. 

Insuring your electric vehicle is necessary to prevent accidents and unforeseen mishaps. EV insurance can cover the financial costs incurred in fixing the damages caused to your car by an accident, loss due to theft, etc. Thus, EV insurances save you from a sudden financial burden.

While buying car insurance, you can either opt for third-party insurance or comprehensive insurance. Third-party insurance has been mandated for all vehicles in India. However, it only covers damage to third parties caused by your car. You can opt for the comprehensive insurance policy to ensure your vehicle's safety and protection.

When combined with the right insurance plan, subsidies, and income tax benefits on EVs, one can completely utilise the perks of owning an EV. Thus, buying an electric vehicle offers sustainable transportation facilities, financial benefits, and reduced maintenance costs at the same time.