April 20, 2024

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Tax Benefits On Electric Vehicles In India

3 min read
Electric Vehicles

Not only are Electric Vehicles (EVs) better for the environment, but they are also more fuel-efficient than our conventional gasoline-powered automobiles. In addition, rising gasoline and other fuel prices have led to the desire of many customers to transition to electric vehicles.

In India, EVs not only turn out to be just cost-effective but also have tax benefits. Just like insurance for any other petrol, diesel, or CNG vehicle that is being driven on Indian roads, a third-party electric vehicle insurance policy is the minimum mandate for EVs too. *

Under Indian tax legislation, cars for personal use are considered luxury items; hence, salaried professionals do not enjoy any tax benefits on auto loans.

To promote the usage of electric vehicles in India, the government policies for Electric Vehicles in India include a new tax exemption for EV owners.

There is no shortage of electric car models in India, and several manufacturers aim to release new models in the coming years in response to rising sales. Before you purchase your electric car, you should also compare several policies that insurance companies offer as electric car insurance and understand what all may be covered.*

* Standard T&C Apply

Tax deductions on loans for EVs: Under section 80EEB, a tax rebate of up to Rs 1.5 lakh is possible while repaying an EV loan. This tax credit applies to the purchase of both four-wheeled and two-wheeled electric vehicles. These tax benefits are subject to prevailing laws and regulations. ‘Tax benefit is subject to change in tax laws’.

Eligibility criteria: This deduction is available just for individuals. No additional taxpayers qualify for this deduction.

Following are the conditions that apply to section 80EEB

  • This exemption can be availed only once per individual. Only those buying an electric vehicle for the first time would be eligible for tax relief under Section 80EEB.
  • This exemption applies only to individuals who finance an electric vehicle. A loan from a financial institution or non-banking financial organisation (NBFC) to finance the electric vehicle purchase is a must to avail of the benefits of this exemption.
  • The section applies to the repayment of all EV loans accepted between April 1, 2019, and March 31, 2023.
  • Beginning with the 2020-2021 fiscal year, tax benefits under Section 80EEB can be available.

Individuals who take a bank loan to purchase an EV can be eligible for a Rs 1.5 lakh tax deduction on the interest paid on loan under Section 80EEB.

This tax-saving benefit makes purchasing an EV as their next vehicle an attractive option for salaried workers.

‘Tax benefit is subject to change in tax laws’.

How does India compare to other nations in terms of tax incentives for electric vehicles?

To fulfil its obligations under the Paris Climate Accords, the government has promoted the use of electric vehicles and urged state governments to offer incentives for purchasing battery-operated vehicles. In August 2022, the Ministry of Road Transport and Highways announced that electric vehicles would be exempt from “fees for granting or renewing registration certificates.*

In the recent past, the government reduced the GST applicable to electric vehicles to 5%.*

Under the Faster Adoption & Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme, electric four-wheelers receive a maximum subsidy of Rs 1.5 lakh. In contrast, two-wheelers receive a subsidy of up to 40% of their purchase price.*

In addition to the incentives and subsidies provided by FAME-II, state governments may offer additional incentives and subsidies for purchasing electric vehicles.

Maharashtra offers a maximum subsidy of Rs 2.5 lakh on electric automobiles and SUVs. Delhi, West Bengal, Bihar, Gujarat and Assam offer maximum subsidies of Rs 1.5 lakh.

Odisha offers a subsidy of Rs 1 lakh, while Meghalaya offers Rs 60,000.

* Standard T&C Apply

These tax benefits on electric vehicles in India may motivate drivers to consider environment-friendly vehicles. However, keep in mind that tax benefits are subject to change in prevalent tax laws. The Indian consumer might be spoilt for choice, with the market being flooded with various new EV variants. But before you buy your first EV, remember to get an electric vehicle insurance policy that offers good coverage. *

‘Tax benefit is subject to change in tax laws’.

To conclude

We hope that the government policies on electric vehicles in India remain favourable for both vehicle manufacturers and customers so that we continue to remain on the road toward a greener future.

‘Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale. ‘

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