Income Tax 2025

Appearance

Deduction in respect of purchase of electric vehicle ​

132(1) ​

An assessee, being an individual, shall be allowed a deduction of interest payable on loan taken by him from any financial institution for the purpose of purchase of an electric vehicle, as per the provisions of this section.

132(2) ​

The deduction under sub-section (1) shall be subject to the condition that the loan has been sanctioned by the financial institution during the period beginning on the 1st April, 2019 and ending with the 31st March, 2023.

132(3) ​

The deduction under sub-section (1) shall not exceed one lakh fifty thousand rupees and shall be allowed in computing the total income of the individual for the tax year beginning on the 1st April, 2019 and subsequent tax years.

132(4) ​

Where a deduction under this section is allowed for any interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other tax year.

132(5) ​

In this section,—

  • (a) “electric vehicle” means a vehicle powered exclusively by an electric motor, whose traction energy is supplied exclusively by traction battery installed in the vehicle and has such electric regenerative braking system, which during braking provides for the conversion of vehicle kinetic energy into electrical energy; and
  • (b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies, or any bank or banking institution referred to in section 51 of that Act and includes a non-banking financial company
Explanation

Section Summary: ​

This section provides a tax deduction for individuals on the interest paid on loans taken to purchase electric vehicles (EVs). The deduction is aimed at encouraging the adoption of environmentally friendly transportation by reducing the financial burden of EV loans. The deduction is applicable for loans sanctioned between April 1, 2019, and March 31, 2023, and is capped at ₹1.5 lakh per tax year.

Key Changes: ​

  1. New Deduction for EV Loans: This is a new provision introduced to promote the use of electric vehicles. Previously, there was no specific deduction for interest on loans taken for EVs.
  2. Time-Bound Eligibility: The deduction is only available for loans sanctioned between April 1, 2019, and March 31, 2023.
  3. Capped Deduction: The maximum deduction allowed is ₹1.5 lakh per tax year, regardless of the total interest paid.

Practical Implications: ​

  1. For Individuals: Taxpayers who have taken loans to purchase electric vehicles can claim a deduction on the interest paid, up to ₹1.5 lakh per year. This reduces their taxable income, leading to lower tax liability.
  2. For Financial Institutions: Banks and NBFCs may see increased demand for EV loans due to this tax benefit.
  3. No Double Deduction: If a taxpayer claims this deduction, they cannot claim the same interest under any other section of the Income Tax Act.

Critical Concepts: ​

  1. Electric Vehicle Definition: The vehicle must be exclusively powered by an electric motor and have a regenerative braking system that converts kinetic energy into electrical energy.
  2. Financial Institution Definition: Includes banks regulated under the Banking Regulation Act, 1949, and non-banking financial companies (NBFCs).
  3. No Overlap with Other Deductions: The interest claimed under this section cannot be claimed under any other provision of the Income Tax Act.

Compliance Steps: ​

  1. Documentation: Maintain loan sanction documents and proof of interest payments (e.g., loan statements, interest certificates from the bank).
  2. Reporting: Report the interest amount paid during the tax year in the appropriate section of the income tax return (ITR).
  3. Ensure Eligibility: Verify that the loan was sanctioned between April 1, 2019, and March 31, 2023, and that the vehicle meets the definition of an electric vehicle.

Examples: ​

  • Scenario 1: Mr. A takes a loan of ₹10 lakh in June 2021 to buy an electric car. He pays ₹2 lakh as interest in the financial year 2022-23. He can claim a deduction of ₹1.5 lakh (the maximum allowed) under this section, reducing his taxable income by ₹1.5 lakh.
  • Scenario 2: Ms. B takes a loan of ₹5 lakh in March 2023 to buy an electric scooter. She pays ₹50,000 as interest in the financial year 2023-24. She can claim the entire ₹50,000 as a deduction under this section.

This section incentivizes the adoption of electric vehicles by providing a direct tax benefit, aligning with broader environmental and sustainability goals.