Can you claim Income-Tax deduction on loan for EV purchase? Here's eligibility criteria and key highlights, explained

Deduction for loan used to purchase an electric vehicle is provided under Section 80EEB of the Income-Tax Act (ITA) for interest payment up to ₹1.5 lakh in a financial year under the old tax regime.

Notably, this tax benefit was implemented by the Centre to encourage EV adoption in India, promote the sector among ordinary citizens, and bring around a shift for the auto industry.

What are the eligibility criteria?

• The eligibility period to avail this tax benefit is capped — your loan should have been approved between 1 January 2019 to 31 March 2023.
• Further, this deduction is only available to individual taxpayers under the old tax regime.
• Taxpayers including Hindu Undivided Family (HUF), a firm, partnership or company, or association of persons (AOP) cannot claim tax benefit for EV under Section 80EEB of ITA.

EV loan deduction: Key highlights

• The rebate is one-time only and cannot be used for purchase of multiple EVs, according to a Tax Buddy report.
• It is available against loan amount towards purchase of electric vehicle by a salaried taxpayer for personal use.
• Notably, the deduction is also available for business use of an EV, as long as the purchaser and taxpayer is a salaried individual.
• You will have to submit the interest-paid certificate and other proof i.e. tax invoice and loan documents when filing your income-tax returns (ITR).
• The loan must be specifically for purchase of purchasing an EV from a bank, financial institution of NBFC.
• EV in this case only includes vehicles powered fully by an electric motor and traction battery system, where the electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy, as per a Clear Tax report.

What are tax benefits for your other car loans?

Even if you do not purchase an EV, a self-employed or business owner taxpayer in India can report a car loan under Section 80D and claim it as a business expense to gain relief under both the old tax regime and new tax regime.

Notably, in order to claim this deduction, details of your car loan must be included in your returns, where interest paid toward the loan is reported as a business expenses. For this, you can approach your bank for the interest certificate which is to be submitted with your tax papers.

Further, if your car is also used for personal reasons, you can only claim benefits for the official or business use — i.e. if you use it 60:40 for business vs personal reasons, you can only claim 60% of the expenses when filing taxes. It is thus important to keep detailed records of your car usage, fuel expenses, maintenance costs, and other relevant documents to support your tax claims.

Depending on the type of car, you can also claim depreciation on the asset (since it is a business purchase) based on applicable rates; and claim deductions for fuel and maintenance purposes of the business asset (car). These can be discussed with your financial planner or Chartered Accountant.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.