To promote the use of electric vehicles in the country, the government this year in the Union Budget 2019 introduced an additional income tax deduction of Rs. 1.5 lakh on interest payment against loan taken to purchase electric vehicle. For the same, a new Section 80EEB has been proposed to provide for the tax deduction on interest paid on electric vehicle loan. So, with this you will for the first get income tax benefit for buying a car on loan, provided it is an electric vehicle.
The FM in her budget speech noted that the incentive given on electric vehicle loan will help people save around Rs. 2.5 lakh during the loan tenure.
Why the tax incentive on electric vehicle?
Government some time back has urged the automobile industry to completely transition to electric vehicles and this new tax benefit extended on electric vehicle buying may boost demand for the product and in turn encourage players in the industry to ramp-up production of electric vehicles.
Though a booster dose to spur investment in the segment has been given by way of tax deduction, much more needs to be done on the infrastructure front (charging points availability) to encourage people to opt for electric vehicle as a mode of transport.
Few important points
1. 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.
2. The proposed section will come into effect from April 1, 2020 and thus will become applicable from AY 2020-21.
In a note, PwC further said that "It has also been provided that no deduction for such interest will be allowed for the same or any other assessment year".
SBI's loan facility for electric vehicles at 20bps discount
To boost the ailing electric vehicles segment, the country's largest state-run lender SBI in April extended a discounted loan offer to buyers of these vehicles i.e. 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.
"We believe SBI green car loan (electric vehicle) scheme would act as a change agent in the auto loan segment and encourage customers to switch to electric vehicles which can improve overall air quality and lower carbon emissions," managing director, retail and digital banking, PK Gupta said.