In the Union Budget 2019, the government has announced a deduction from the income for purchase electric vehicle. The Finance (No. 2) Bill, 2019 introduced a new section 80EEB for allowing a deduction in respect of interest on loan taken for the purpose of purchase of electric vehicles with effect from the AY 2020-21. This is the first time when deduction from income is allowed for the purchase of a vehicle under the Income Tax Act, 1961. The maximum amount of deduction u/s 80EEB is capped at Rs. 1,50,000 in a financial year.
While presenting the Union Budget, 2019, the Finance Minister told in the Parliament that the government wants to make India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts. Government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%. Also to make electric vehicle affordable to consumers, our government will provide an additional income tax deduction of Rs. 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. It was calculated that this amounts to a benefit of around Rs. 2.5 lakh over the loan period to the taxpayers who took loans to purchase an electric vehicle.
To give effect to this proposal, a new provision section 80EEB is introduced vide clause 25 in the Finance (No. 2) Bill, 2019 in the following manner-
80EEB. (1) In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of purchase of an electric vehicle.
(2) The deduction under sub-section (1) shall not exceed one lakh and fifty thousand rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on the 1st day of April 2020 and subsequent assessment years.
(3) The deduction under sub-section (1) shall be subject to the condition that the loan has been sanctioned by the financial institution during the period beginning on the 1st day of April 2019 and ending on the 31st day of March 2023.
(4) Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.
(5) For the purposes of this section,––
(a) “electric vehicle” means a vehicle which is powered exclusively by an electric motor whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy;
(b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Act and includes any deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B.
The 'Notes on clauses' states that Clause 25 of of the Bill seeks to insert a new section 80EEB in the Income-tax Act relating to deduction in respect of interest on loan taken for the purchase of an electric vehicle.
The proposed new section 80EEB seeks to provide for a deduction up to Rs. 1,50,000 in respect of interest on loan taken for the purchase of an electric vehicle from any financial institution subject to the conditions specified therein.
This amendment will take effect from 1st April 2020 and will, accordingly, apply in relation to the assessment year 2020- 2021 and subsequent assessment years.
The Memorandum explaining the provisions of Finance (No. 2) Bill, 2019 states the conditions for claiming the deduction u/s 80EEB for interest on loan taken for the purchase of an electric vehicle in the following words-
The Memorandum explaining the provisions of Finance (No. 2) Bill, 2019 states the conditions for claiming the deduction u/s 80EEB for interest on loan taken for the purchase of an electric vehicle in the following words-
With a view to improve the environment and to reduce vehicular pollution, it is proposed to insert a new section 80EEB in the Act so as to provide for a deduction in respect of interest on loan taken for the purchase of an electric vehicle from any financial institution up to Rs. 1,50,000 subject to the following conditions:
(i) the loan has been sanctioned by a financial institution including a non-banking financial company during the period beginning on the 1st April 2019 to 31st March 2023;
(ii) the assessee does not own any other electric vehicle on the date of sanction of loan.
It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.
The condition (ii) which restricts the deduction if the individual owns any other electric vehicle on the date of sanction of loan is missing in the drafted section 80EEB of the Finance (No. 2) Bill, 2019.
It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.
The condition (ii) which restricts the deduction if the individual owns any other electric vehicle on the date of sanction of loan is missing in the drafted section 80EEB of the Finance (No. 2) Bill, 2019.
The abstract of section 80EEB for claiming deduction on interest payable on loan taken for the purchase of an electric vehicle is given below-
(i) This deduction is only available to an Individual.
(ii) The interest on loan is taken for the purchase of an electric vehicle is allowed as a deduction even if the interest is not paid after it becomes due and payable.
(iii) The loan must be taken from a bank or a deposit-taking NBFC or a systemically non-deposit taking NBFC. If loan is taken from any other organization, then deduction u/s 80EEB is not available. For example, if an employee has taken the loan from his employer, who is not a bank or NBFC, then the deduction is not available.
(iv) The loan must be taken for the purchase of electric vehicle only. If any other, for example, petrol or diesel vehicle is purchased, then the deduction u/s 80EEB is not available.
(v) The loan must be sanctioned by the bank or NBFC in a period of four years from 1st April 2019 to 31st March 2023.
If all the above-mentioned conditions are satisfied then deduction u/s 80EEB can be claimed for interest paid or payable on loan taken for the purchase of an electric vehicle.
In case an Individual has income from business, then entire interest expenses taken for the purchase of an electric vehicle used in the business can be claimed as business expenditure. In case entire interest expenses cannot be claimed as business expenditure, the remaining part of the expenditure can be claimed as deduction u/s 80EEB for a maximum amount of Rs. 1,50,000 in a financial year.
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