Tax Benefit on Electric Bike in India: Deductions and Savings

26 Mar 2024|

2 min read |

by ICICI Securities Team

Introduction to Tax Benefits on Electric Bikes in India

Section 80 EEB is a newly inserted item in the Income Tax Act to boost electric vehicles in India. You can claim deductions up to Rs. 1.5 lacs under this provision if you have loaned from a bank or an NBFC between 1^st April 2019 to 31^st March 2023. In that case, you are entitled to the said deductions from 1^st April 2020 till the repayment of the loan. Further, GST on electric bikes is 5% instead of 12%, making them more appealing. But how much you should loan to experience full action of this newly inserted space is to contemplate before making the final buying decision.

Critical features of tax benefits on electric bikes?

Only individuals can avail of the tax deductions under 80 EEB. Firms or companies are not eligible for this.
Deductions are capped at Rs. 1.5 lac.
The loaning institution must be a bank or an NBFC.
The loan must have been sanctioned between 1^st April 2019 to 31^st March 2023.

Which expenses are tax-deductible?

Interest: Your interest certificate from the loaning institution is proof that you’re eligible for the tax benefit.
Depreciation cost: This means the maintenance costs you incur on your electric bike. They, too, are tax-deductible.

While there can be no tax-free bike loans, these deductions coupled with lower GST rates on buying electric bikes will reduce your overall loan cost.

Additional read: How to use fixed deposits to get a car loan?

How much are you saving? Scenarios to consider:

Electric vehicles are expensive. 80 EEB attempts to provide financial incentives to buyers who purchase these costly items. But how far should you stretch to make full use of this provision?
Your tax benefit will depend on the cost of your bike and the income tax bracket you belong to. Factoring in that bike loans is usually short duration loans of 3 years maximum. If you belong to the 5% income tax bracket, your tax savings will be much lower compared to a buyer belonging to the 30% income tax bracket. That is after assuming that you’d buy a Rs 20 lac electric bike despite your 5% tax bracket.

In a nutshell:

Tax benefits are something to look forward to. But you can’t decide to buy a Mercedes just because the fuel price is half of what it’s now, hypothetically speaking. Likewise, decide whether to buy an electric bike when your income allows you to exhaust the limit of that dedicated provision. If you still decide to stretch and buy, you are most certainly someone with values greater than money. While that’s respectful, you should not be made to choose principle at the cost of profit.

Additional read: How to Use Two-Wheeler Loan EMI Calculator to Calculate Monthly Instalment

Conclusion: Key Takeaways on Electric Bike Tax Benefits

There are other parameters to consider before purchasing an electric bike on loan. Special tax benefits are certainly appealing. This is especially true if your electric bike is used for business purposes where you make considerable profits. But let your stance towards clean air also guide your decision. And if your principles and profits merge anyhow, don’t resist because that’s rare.

Disclaimer

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