Section 80EEB

Example

Suppose you took a loan of ₹10 lakh to buy a new electric car in May 2021. In FY 2022-23, you paid ₹1.8 lakh as interest on this loan. Under Section 80EEB, you could claim a deduction of ₹1.5 lakh (the maximum allowed) from your gross total income for that year, reducing your taxable income by ₹1.5 lakh.

Key Components

• Deduction Limit: Up to ₹1,50,000 per year on interest paid for the EV loan.

• Eligibility: Only individuals (not companies, HUFs, etc.) under the old tax regime.

• Loan Period: Loan must be sanctioned between April 1, 2019, and March 31, 2023.

• Loan Source: Loan must be from a bank or NBFC.

• Vehicle Type: Only new electric vehicles (2-wheelers or 4-wheelers); excludes hybrids.

• Documentation: Loan sanction letter, interest certificate, repayment schedule, and purchase invoice are required.

Benefits

• Direct Tax Savings: Reduces taxable income by up to ₹1.5 lakh, lowering tax liability.

• Promotes Green Mobility: Encourages the adoption of EVs, supporting environmental goals.

• Applies to Both Personal and Business Use: Individuals using EVs for business can claim excess interest as a business expense.

• Additional State Benefits: Some states offer lower registration fees, road tax exemptions, and reduced GST (5% on EVs).

Challenges

• Limited Time Window: Only loans sanctioned between April 2019 and March 2023 qualify; new loans post-March 2023 are not eligible.

• Old Tax Regime Only: Not available to those opting for the new tax regime.

• Individuals Only: No benefit for companies, HUFs, or partnership firms.

• Documentation Burden: Multiple documents are needed to claim the deduction.

• No Principal Deduction: Only the interest component is eligible, not the principal repayment.

Summary

Section 80EEB was a targeted tax incentive for individuals purchasing new electric vehicles with loans sanctioned in a specific period. It offered significant tax savings but had strict eligibility and documentation requirements. The deduction is no longer available for loans sanctioned after March 31, 2023.