Budget 2019 India: Good time to move on from ‘dirty’ cars as FM announces new tax deduction with an eye on a cleaner, greener future.
Union Budget 2019 India: In her first Union Budget speech, Finance Minister Nirmala Sitharaman took everyone by surprise by introducing a brand-new tax deduction on loans taken to purchase electrical vehicles (EVs). So far, vehicle loans had been outside the ambit of tax deductions that were created to ease the burden of repaying home and education loans. Car purchases, largely considered a luxury, attracted no income tax deductions – until now. The government had earlier asked the GST council to slash the GST rate on EVs from 12% to 5%.
Deduction Under Section 80EEB
From April 1 2020, you’ll be able to avail a new deduction under Section 80EEB for the interest paid on a loan taken for the purchase of an EV. The loan needs to be availed from a financial institution between the dates April 1, 2019 and March 31, 2023. The deduction applies only to your first EV purchase. The provision doesn’t specifically mention whether the vehicle needs to be a car or a two-wheeler, therefore all vehicle seekers looking to go ‘green’ are likely to benefit from it.
What Does This Mean?
A loan EMI consists of principal and interest payments. If you borrow Rs. 15 lakh to purchase a vehicle at an interest rate of 10% for 7 years, your EMI will be Rs. 24,901. Your interest payment in the first year of repayment would be Rs. 1.43 lakh, Rs. 1.26 lakh in the second, Rs. 1.08 lakh in the third, Rs. 0.88 lakh in the fourth, Rs. 0.66 lakh in the fifth, Rs. 0.42 lakh in the sixth and Rs. 0.15 lakh in the final year. This adds up to Rs. 5.91 lakh over 7 years. However, under Section 80EEB, you’ll be able to save taxes on this amount. Assuming a flat 30% rate, you’ll save Rs. 1.77 lakh over seven years, or approximately Rs. 25,300 per year – handsome savings by any stretch of imagination!
Spur Demand For E-Cars
The auto industry, which has been dragged by high inventories, falling sales and factories closing down, had looked forward to positive announcements from the Union Budget. However, the Finance Minister has clearly signalled that going green will be the way forward and that petrol and diesel vehicles will need to be phased out. This new tax deduction also needs to be seen in the government’s other pronouncements around EVs. The NITI Aayog CEO Amitabh Kant has suggested that all petrol and diesel vehicles should be phased out by 2030. Mr. Kant also proposed that only electric bikes be sold from 2025 in the 150 CC or less category.
Current Demand For EVs
Despite the availability of a handful of alternatives, the demand for e-cars in India is currently low. As per statistics from the Society of Indian Automobile Manufacturers, 2018 saw the sale of only 56,000 EVs in that year. Improvements are required in making car batteries more efficient, and a larger number of charging stations are needed all over the country.
That said, the Indian millennial is no longer content with basic cars. As per Bankbazaar’s Moneymood findings of 2018, the average car loan ticket size in metros was Rs. 5.72 lakh and Rs. 5.21 lakh in non-metros, indicating a demand for bigger, faster, trendier cars.
The prevalent liquidity crunch notwithstanding, it’s for the automobile industry to catch up to this demand and provide vehicles fit for a cleaner, greener future. With the adverse effects of carbon dioxide emission been seen all over the world, there’s been no better than now to switch over to green vehicles. Especially when you factor in today’s proposal to increase the Special Additional Excise Duty and Road and Infrastructure Cess by a rupee each on a litre of petrol and diesel.
(The writer is CEO, BankBazaar.com)