In efforts to make electric vehicles more affordable, the centre has proposed to provide an income tax deduction of Rs 1.5 lakh on the interest paid on loan taken to buy EVs. This means that for the first time ever, you will get a tax benefit for buying a car on loan, provided it’s an electric vehicle.
Breaking down the Concept
Sitharaman mentioned that the incentive given on EV loan will help people save around Rs. 2.5 lakh during the loan tenure.
For the same purpose, a new section ‘80EEB’ has been proposed, to provide this deduction to individual taxpayers with respect to interest on loan taken to purchase an electric vehicle from any financial institution.
This is the first time that electric vehicles have been proposed to become a direct tax beneficiary. The Finance Minister also mentioned that the government has already moved Goods and Services Tax (GST) council to lower GST on electric vehicles from 12% to 5%.
Why Does the Govt Want to Take this Step?
We’d some time back brought an article to you confessing how the government wants to migrate towards electric vehicles for two-wheelers of engine capacity of upto 150 cc and three-wheelers by 2023 and 2025. It has urged the automobile industries to make this shift in the near future and this new tax benefit extended on EVs’ purchase may boost up the demand for the product and in turn encourage players in the industry to ramp-up production of EVs.
It’ll not only make India a global manufacturing hub for electric vehicles but also add to the green initiative that our govt has been working on vigorously. The Modi govt has already spent over Rs 10,000 crore to boost the EV adoption in India in the next three years.
Such tax incentives will encourage more and more people to purchase electric vehicles, increasing the demand, leading to the automobile companies to manufacture more electric vehicles. The govt also accepts that due to lack of good infrastructure such as availability of charging points, the demand has been slow.
Few Important Pointers
• The deduction shall be allowed for such loans extended by a financial entity that includes an NBFC firm during the period between April 1 2019 to March 31, 2023.
• The proposed section will come into effect from April 1, 2020 and thus will become applicable from AY 2020-21.
•It has also been provided that no deduction for such interest will be allowed for the same or any other assessment year.
Working out the Calculations
Let’s take a base model electric car: Mahindra e2o plus P4. Its retail price is Rs 7.46 lakh. Taking a loan on the entire amount at an interest of 10.25% for 5 years, your EMI will be Rs 15,947. Of this, around Rs 9,500 will go towards principal and Rs 6,374 will go towards the interest payment.
SBI’s Loan Facility for EVs
To boost the electric vehicles segment, the country’s largest state-run lender SBI in April extended a discounted loan offer to buyers of these vehicles, priced 20 basis points lower in comparison to its current auto loan interest rates.
For the first six months of the launch of the scheme, there shall be no processing fee for a loan for electric vehicle purchase. Further, the strategic addition to the bank’s auto loan segment will have the longest repayment tenure of up to eight years.