Buying an Electric Vehicle? Know Ways to Save Tax on Electric Vehicles (EV)

As the world increasingly shifts towards sustainable transportation, the adoption of electric vehicles (EVs) has surged. Not only are EVs environmentally friendly, but they also offer numerous financial incentives, including potential tax savings. If you're considering purchasing an electric vehicle, it's crucial to understand the various ways you can leverage tax benefits to make your investment even more cost-effective. In this comprehensive guide, we'll walk you through the strategies and options available to save on taxes when buying an electric vehicle. From federal tax credits to state incentives, you'll gain valuable insights into optimising your EV purchase and contributing to a greener future.

What Is Meant by an Electric Vehicle? 

An electric vehicle refers to an automobile powered by an electric motor. These vehicles rely on a traction battery to provide the necessary energy for their operation. Additionally, electric vehicles are outfitted with an electric regenerative braking system. When brakes are engaged, this regenerative braking system transforms kinetic energy into electrical energy.

Advantages of Electric Vehicles

Here are some of the advantages enjoyed by electric vehicle owners:

• Reduced GST Rate – The government has reduced the GST rate on electric vehicles from 12% to 5% to benefit buyers. 

• Green Tax Exemption – A green tax is typically applied while renewing the vehicle's registration certificate (RC) after 15 years. However, electric vehicle buyers are exempt from this charge. 
• Lower Maintenance Costs – Electric vehicles have significantly lower maintenance costs compared to traditional diesel or petrol vehicles. 
• No Need for PUC Certificate – Unlike diesel or petrol cars, electric vehicles do not require Pollution Under Control (PUC) certificates, which certify that a vehicle does not emit hazardous gases. Since EVs are battery-operated, such certification is unnecessary.
• Electric Car Insurance – Many insurance providers offer coverage for electric vehicles, protecting them against third-party and own car damages. Also, like standard vehicles, EVs must legally have third-party insurance coverage.

Section EEB for Electric Vehicles 

In response to the central government's significant efforts, amendments were made to income tax regulations to accommodate deductions. Consequently, in 2019, Section 80EEB was established, paving the way for tax exemptions related to electric vehicles. Under this amendment, if you take out a loan to purchase an electric vehicle, you can utilise the interest paid on the loan for tax deductions. This provision is applicable for assessment years 2020-21 to 2022-23.

All You Need to Know About Claiming Deductions Under Section 80EEB 

Here's a comprehensive guide to claiming a tax exemption for electric vehicles:

1. You must have taken a loan specifically to purchase an electric vehicle.
2. You are free to choose any financial institution or NBFC to secure the loan.
3. Only individual taxpayers are eligible for these benefits.
4. The benefits are applicable only to the interest amount of the loan.
5. The loan must be approved between the assessment years 2020-21 to 2022-23.
6. Deductions are capped at a maximum of Rs 1,50,000.
7. Hindu undivided families, companies, partnership firms, and associations of persons are not eligible for these tax advantages.

Why Choose Electric Vehicle Insurance in India?

As electric vehicles gain traction on Indian roads, specialised insurance has become essential. Electric vehicle insurance offers benefits that cater to the unique needs of EVs.

EVs involve advanced components, making repairs costlier. EV insurance provides peace of mind, covering damages without hefty bills.

This insurance includes protection against battery damage, fire, and explosions—rarely covered by regular policies. It may also cover charging equipment. Some insurers offer perks like home charging station discounts and battery replacement coverage.

In essence, electric vehicle insurance ensures EV owners are protected against unique risks, providing tailored coverage and assurance.

Conclusion

In conclusion, purchasing an electric vehicle benefits the environment and provides opportunities for substantial tax savings. Understanding the various tax incentives available, such as federal credits and state rebates, can significantly reduce EV ownership costs. It's essential to stay informed about local regulations and incentives and keep all necessary documentation for a seamless claim process. By taking advantage of these opportunities, you not only contribute to a greener future but also enjoy financial advantages in the present. 

FAQs

• What tax incentives are available for electric vehicle buyers?

Tax incentives for electric vehicles can vary by location. Common incentives include federal tax credits, state rebates, and local benefits. Be sure to research the incentives available in your area to maximise your savings.

• How do federal tax credits for EVs work?

Federal tax credits are designed to reduce the overall cost of an electric vehicle. Buyers can claim a credit when filing their federal income taxes. The credit amount depends on the vehicle's battery size and other factors.

• Are there state-specific incentives for electric vehicle purchases?

Yes, many states offer additional incentives, such as rebates, reduced registration fees, or access to carpool lanes. These incentives can significantly vary from state to state.

• Do tax incentives apply to both new and used electric vehicles?

While federal tax credits are typically available for new EVs, some states may offer incentives for used electric vehicles. It's essential to check the specific regulations in your area.

• What documentation do I need to claim EV tax incentives?

To claim tax incentives, you'll typically need documentation such as purchase receipts, vehicle details, and proof of residency. Keeping organised records is advisable to simplify the claiming process during tax season.