How much income tax you can save on buying an electric car

Mumbai: For the first time ever, you will get tax benefit for buying a car on loan. The government has decided to provide an additional income tax deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. A new section 80EEB has been proposed to provide for this deduction to individual taxpayers with respect to interest on loan taken to purchase an electric vehicle from any financial institution. Let’s take a look at how the math will work out for you:

About the tax benefit

Tax incentive on electric car loans is to spur investments in the segment. “It will encourage automobile companies to manufacture more electric vehicles as this additional tax deduction introduced may spur the demand for electric vehicles,” said Rachit Chawla, founder and CEO, Finway. However it is a chicken-and egg situation. This amounts to a benefit of around 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle, notes the finance minister in the budget. “If there is no infrastructure, customers may not buy an electric vehicle. In the other way, manufacturers won’t make electric vehicles if there are no customers. Hence, it is a good enabling clause but it is still unclear who will benefit from this move. Due to lack of good infrastructure such as availability of charging points, the demand has been slow,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories.

The math

To get a sense of the cost and deduction, let’s take a look at a base model electric car. For Mahindra e2o plus P4 base model, the ex-showroom price for Mumbai is around 7.46 lakh, according to

If you take a loan on the entire amount, at an interest rate of 10.25% and take a loan tenure of five years, your EMI will be15,947 in which around 9,500 will go towards principal and6,374 will go towards the interest payment, according to’s car loan EMI calculator.

“This deduction is available for loans sanctioned by a financial institution (including a NBFC) during the period beginning on April 1, 2019 to March 31, 2023. It has also been provided that no deduction for such interest will be allowed for the same or any other assessment year. The proposed section will be effective from April 1, 2020 and will accordingly apply from AY 2020-21 onwards,” said PwC in a note.


SBI offers specific loan for electric car

Did you know banks offer electric car loans at lower interest rate?

“Currently, State Bank of India offers differential loan to purchase electric vehicles (EVs). SBI launched Green Car loan in April 2019, which provides loan for EVs at discounted price of 20 basis points lower than regular car loan rates,” said Naveen Kukreja, CEO & co-founder, Before finalising any lender, compare rates. “Check rates offered by captive car finance firms.”