Tax Benefits Of Owning An Electric Vehicle (EV) In India

Introduction

In recent years, the adoption of electric vehicles (EVs) in India has been on the rise due to various factors such as environmental concerns, technological advancements, and government initiatives. Beyond their positive impact on the environment, EVs also offer significant tax benefits to their owners. This article delves into the tax advantages that individuals can avail of when owning an electric vehicle in India.

Tax benefits of owning an EV

Section 80EEB of the Income Tax Act provides an income tax deduction for owning an EV. The benefit is available only for individuals and not for any other legal entities such as a company, firm, HUF etc.

Accordingly, if a person buys an EV through a vehicle loan, a deduction is available for the interest paid on such a loan. Deduction for interest payments of up to Rs 1,50,000 can be claimed under this section. The EV may be bought by the individual for personal or business use. If used for business use, the interest paid over and above Rs 1.5 lakh can be shown as business expenses.

To claim this deduction, the individual should retain a copy of the interest certificate, car loan documents and tax invoice. The car loan must be taken to specifically buy an electric vehicle. Only vehicle loans taken from a financial institution or non-banking financial company are eligible for this benefit. Presently, the deduction is available for loans sanctioned during the period between 1 April 2019 and 31 March 2023.

This deduction can be availed of by electric cars as well as two-wheeler owners.

Non-tax benefits of owning an EV

The Faster Adoption and Manufacturing of (Hybrid and) Electric vehicles scheme (FAME) offers incentives for purchasing an EV. This national scheme offers:

Two-wheelers – An incentive of Rs 15,000 per kWh subject to a maximum of 40% of the cost of the two-wheeler
Three-wheelers and four-wheelers – Rs 10,000 per kWh
E-buses and e-trucks – Rs 20,000 per kWh

The scheme also defines the approximate size of the EV battery in each case.

In addition, state governments offer incentives for the purchase and/or manufacturing of EVs.

With all the financial and environmental benefits that it brings, EVs are poised to become the vehicle of choice for the present as well as future vehicle owners. Make sure to protect your EV with solid comprehensive car insurance or scooter insurance.

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Understanding Electric Vehicle Tax Benefits

1. Exemption from Road Tax

One of the most attractive incentives for EV owners is the exemption from road tax. In many states across India, EVs are either completely exempt from road tax or offered a substantial reduction. This not only reduces the initial cost of purchasing an EV but also incentivizes more people to transition to eco-friendly transportation options.

2. Income Tax Deductions

Individuals who have taken loans to purchase an electric vehicle can benefit from income tax deductions. The interest paid on these loans is eligible for deductions under Section 80EEB of the Income Tax Act, 1961. This provision encourages consumers to consider EVs as a viable option while also easing the financial burden associated with vehicle loans.

State-Specific Benefits

State Government Subsidies

Several state governments in India offer additional subsidies and incentives to promote EV adoption. These subsidies can include reduced registration fees, cash incentives, and discounts on EV purchases. These localized benefits supplement the central government’s efforts and make EVs even more affordable for the general public.

Central Government Initiatives

Faster Depreciation

Under the Income Tax Act, businesses that own electric vehicles are eligible for faster depreciation benefits. Instead of the standard 15%, businesses can claim up to 50% depreciation on EVs, significantly lowering their tax liabilities. This serves as a compelling reason for businesses to incorporate EVs into their fleets.

GST Rate Reduction

Electric vehicles in India are subject to a lower Goods and Services Tax (GST) rate compared to traditional combustion engine vehicles. This reduction in GST further reduces the overall cost of purchasing an EV, making it an economically sensible choice for consumers.

Environmental Benefits Leading to Tax Benefits

Green Energy Focus

The Indian government’s push towards clean energy and reducing carbon emissions has resulted in the provision of tax benefits for EV owners. By opting for an electric vehicle, individuals actively contribute to the nation’s sustainable development goals, and in return, they enjoy fiscal incentives.

Future Outlook

Anticipated Incentives

As the EV ecosystem in India matures, it’s expected that more incentives will be introduced to accelerate EV adoption. These incentives might include lower charging tariffs, extended warranty benefits, and improved charging infrastructure, making EV ownership even more convenient and appealing.

Conclusion

Owning an electric vehicle in India comes with a plethora of tax benefits that not only make EVs economically viable but also contribute to a cleaner environment. From exemptions in road tax to income tax deductions and various state-specific subsidies, the government is actively encouraging citizens to make the switch to electric mobility.

FAQs (Frequently Asked Questions)

Are all states in India offering road tax exemptions for EVs?

While many states do offer road tax exemptions, it’s recommended to check with your local RTO to confirm the latest regulations in your region.

Can businesses claim GST input credit on electric vehicle purchases?

Yes, businesses can claim GST input credit for the GST paid on the purchase of electric vehicles, which further reduces their tax liability.

Are there any benefits for installing home charging stations?

At present, there might not be direct tax benefits for installing home charging stations, but government initiatives to boost charging infrastructure could bring about future incentives.