Tax benefit on an electric bike in India

Posted on: Dec 13, 2022 | 3 mins | Written by: HDFC ERGO Team

Tax benefit on an electric bike in India

Climate change is a priority for most developing countries and India is no exception. Electric vehicles play a major role in combating climate change and the government is incentivizing their purchase with income tax benefits and GST reductions.

The success of online shopping platforms and the increase in instant grocery deliveries has cheered delivery persons to switch to this economical and effective way of transporting goods. With ease of use and much lower running costs, electric bikes are becoming a popular choice for last-mile connectivity.

But remember that while an electric bike aids in environmental preservation, two-wheeler insurance aids in providing enhanced protection to ourselves and those around us. Getting fundamental, third-party bike insurance will protect you and your new bike, even though a comprehensive bike insurance cover is not mandatory.

What is Section 80EEB? What are the income tax benefits enjoyed by Electric Bikes under this section?

Our Government realized that citizens needed the incentive to move towards electric vehicles and a tax break was thought to be the best way to achieve that. Accordingly, they introduced section 80EEB in the budget session of 2019-20. This allows a deduction of up to Rs 1.5 lakhs on the interest paid on loans taken to purchase EVs.

This would be a great relief for EV owners as the two-wheeler insurance premium on EV vehicles can be a bit higher. But that shouldn't be a reason to delay your purchase of the basic third-party bike insurance, as this will provide you with the much-needed protection for your bike and the motorcyclist who rides with you. Thankfully, the insured declared value on EVs is currently being calculated the same as internal combustion engine vehicles. That is some relief there!

Not only are owners of electric vehicles exempt from paying income tax on the interest of their EV loan, but they also get to enjoy a GST reduction from 12% to 5%. This was done to incentivize people further to switch to EVs and do their part in preserving the environment. These tax benefits are available for a limited period and are set to expire in March 2023.

Here are important points relating to the tax incentives you can get under Section 80EEB -

1. Get a tax rebate on interest paid on a vehicle loan taken to purchase an electric vehicle. It can be availed for both two-wheeler and cars.

2. The exemption limit is only up to Rs.1.5 lakhs of the annual interest amount.

3. The exemption can be availed only on the purchase of your first electric bike and not on the second or third one.

4. The vehicle must be registered in the name of the taxpayer.

5. This rebate is available only on loans availed between 1st April 2019 and 31st March 2023.

6. It can be availed by individual taxpayers only, not for firms or companies.

7. The loan must have been secured from a recognized bank or financial institution.

8. The tax rebate also covers the depreciation cost, meaning the maintenance cost you incur on maintaining your electric bike.

That is some fantastic news for Gen Z, who would love to be seen riding an electric bike but is also hesitant to do so due to the cost involved.

What are the expenses covered under this tax deduction?

● EV loan interest: Your lending institution's interest certificate serves as proof that you are qualified for the tax rebate.

● Depreciation cost: This refers to the costs of maintaining your electric bike. They are also tax deductible.

Even though no tax-free bike loans are plausible, these tax breaks, translating into lower GST rates on electric bikes, will lower your overall loan cost.

Want to know how the insured declared value of EVs is determined? Our experts can help.

How much are you saving with Sec 80EEB?

80EEB is a great fiscal incentive for people looking to buy an electric vehicle. It not only exempts the interest paid on loans taken to purchase EVs from income tax but also offers a GST reduction on the vehicle's purchase price. However, one must be mindful that this rebate is available for a limited period and is set to expire in March 2023. So, how beneficial is this provision to those aspiring to switch to EVs?

The tax benefits one can avail of under Section 80EEB are not that lucrative for the purchase of EV Bikes. The average cost of EV Bikes in the current market stands at around Rs.1.2 - 1.7 lakhs. Considering that you get a loan of Rs.1 lakh with a 10% interest rate, the annual interest outgo would only be around Rs. 10,000. And you get a full tax rebate on this. Even if you are in the 30% slab, that amounts to a rebate of Rs.3000.

Is this incentive enough to encourage Indians to switch to EVs? We need to wait and watch. But EVs offer many other benefits over traditional petrol bikes. Like a hefty saving on fuel costs, less complicated maintenance, longer battery life, similar two wheeler insurance process, and many more. We still await more information on the third-party bike insurance cost and the insured declared value calculations to realize the overall advantage.

Conclusion

The electric vehicle race is picking up and is predicted to overtake petrol bikes shortly. The government needs to keep a watch on this segment and offer regular incentives, not just one-time tax breaks, to promote electric bikes. One way it can do this is by offering rebates on EV two-wheeler insurance premiums or at least a discount on third-party bike insurance premiums. This will have a positive impact on the uptake of electric two-wheelers.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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