Electric Vehicle Loan Interest Deduction (Rs 1.5 Lakh): Section 132, Income Tax Act 2025

Section 132 of the Income Tax Act 2025 lets an individual deduct the interest payable on a loan taken from a bank or NBFC to buy an electric vehicle, up to Rs 1,50,000 a year. The loan must have been sanctioned between 1 April 2019 and 31 March 2023. A loan sanctioned on or after 1 April 2023 does not qualify.

So this is a deduction for a closed group of older loans, and it keeps running for as long as the interest on those loans keeps being paid. This guide covers who can claim, what counts as an electric vehicle and a financial institution, how the cap works, and how it interacts with the default tax regime. Everything is taken from section 132 as amended by the Finance Act, 2026, and the tax-year figures below are for 2026-27.

Who can claim the electric vehicle loan interest deduction?

Section 132(1) allows the deduction to "an assessee, being an individual". That leaves out HUFs, firms, companies and other persons. The individual must have taken the loan himself or herself, from a financial institution, for the purchase of an electric vehicle.

The section pays out on interest only. It does not allow any deduction for the principal you repay.

What are the conditions for the deduction?

Condition	What section 132 says
Claimant	An individual (s.132(1))
Lender	A "financial institution": a banking company, a bank or banking institution under the Banking Regulation Act, 1949, or a non-banking financial company (s.132(5)(b))
Purpose	Purchase of an electric vehicle (s.132(1))
Sanction window	Loan sanctioned from 1 April 2019 to 31 March 2023 (s.132(2))
Maximum deduction	Rs 1,50,000 a tax year (s.132(3))
No double claim	Interest allowed here cannot be claimed under any other provision, in the same or any other tax year (s.132(4))

What counts as an "electric vehicle" under section 132?

Section 132(5)(a) defines it narrowly. The vehicle must be powered exclusively by an electric motor, with traction energy supplied exclusively by a traction battery fitted in the vehicle. It must also have a regenerative braking system, which converts the vehicle's kinetic energy into electrical energy while braking.

A petrol-electric hybrid is not powered exclusively by an electric motor, so it falls outside this definition. If you are unsure about a particular model, check its specifications against these three tests before claiming.

Does it matter whether the EV is a car or a two-wheeler, new or second-hand?

Section 132(1) refers only to a loan "for the purpose of purchase of an electric vehicle". The only test it sets for the vehicle is the definition in section 132(5)(a), so a two-wheeler, three-wheeler or car can qualify if it meets that definition. The section says nothing about new versus second-hand vehicles, or about the number of vehicles. It does not restrict the deduction to a loan in the claimant's sole name beyond saying the loan is "taken by him". Where your case turns on one of these points, confirm it with a professional before claiming.

Does the sanction date or the disbursement date matter?

The section speaks of the loan being sanctioned in the window (section 132(2)). It does not refer to the date of disbursement or purchase. The sanction letter is therefore the document that decides eligibility. Keep it with your records.

How is the deduction calculated? Two worked examples

Both examples assume the individual has opted out of the default regime (see the next section), the loan meets every condition above, and the tax year is 2026-27. The deduction is the interest payable in the year, limited to Rs 1,50,000.

Example 1: interest below the cap

Step	Amount (Rs)
Interest payable on the EV loan in 2026-27	62,000
Cap under section 132(3)	1,50,000
Deduction = lower of the two	62,000
Gross total income (assumed)	9,00,000
Total income after this deduction (9,00,000 − 62,000)	8,38,000

Example 2: interest above the cap

Step	Amount (Rs)
Interest payable on the EV loan in 2026-27	1,85,000
Cap under section 132(3)	1,50,000
Deduction = lower of the two	1,50,000
Interest above the cap (1,85,000 − 1,50,000)	35,000, not deductible under this section
Gross total income (assumed)	14,00,000
Total income after this deduction (14,00,000 − 1,50,000)	12,50,000

The excess Rs 35,000 cannot be claimed anywhere else either, because section 132(4) bars a deduction under another provision for interest that has been allowed here. The section does not provide for carrying the excess forward.

A third case: the overall cap

Section 122(2) says the total of all Chapter VIII deductions cannot exceed gross total income. Suppose Ravi's gross total income is Rs 1,80,000 and he has already claimed Rs 60,000 of other Chapter VIII deductions. Only Rs 1,20,000 (1,80,000 − 60,000) is left to deduct, even if his EV loan interest is Rs 1,50,000. The overall cap, not section 132(3), is the binding limit here.

Can you claim it under the default tax regime?

Usually no. Section 202(2)(a)(xii) says that under the default regime in section 202(1), total income is computed without any Chapter VIII deduction other than sections 124(1), 124(2), 125(2) and 146. Section 132 sits in Chapter VIII and is not on that list. To use it, an individual must have exercised the option under section 202(4) to be outside the default regime. Our overview of Chapter VIII deductions explains the option and its timing, and our guide to switching between tax regimes covers the rules for moving between them.

Real-life examples

Ravi, eligible. Ravi, a salaried employee, got a bank loan for an electric car sanctioned on 15 March 2023. The car was delivered in June 2023. The sanction date is inside the window, so his interest qualifies. He has opted out of the default regime, so he claims the interest each year up to Rs 1,50,000.

Meena, not eligible. Meena applied for an EV loan in February 2023, but the NBFC issued the sanction letter on 10 April 2023. Her loan was sanctioned after 31 March 2023, so section 132(2) is not met, even though she applied earlier. She cannot claim under this section.

Arjun, lender test fails. Arjun borrowed Rs 8,00,000 from a relative in 2022 to buy an electric scooter. A relative is not a bank, banking institution or NBFC, so the lender is not a "financial institution" under section 132(5)(b). No deduction is available.

Sunita, double claim barred. Sunita runs a small consultancy and wants to claim her EV loan interest both under section 132 and again as a business expense. Section 132(4) does not allow it. Interest allowed under section 132 cannot be deducted under any other provision of the Act.

Common mistakes

• Going by the purchase date. The test is the date the loan was sanctioned, not when the vehicle was bought or the loan disbursed.
• Assuming a hybrid qualifies. The definition requires an exclusively electric motor and a traction battery, plus regenerative braking.
• Claiming without opting out of the default regime. Section 132 is not among the Chapter VIII deductions the default regime allows.
• Claiming on a personal loan or a loan from a relative. The lender must be a bank, a banking institution or an NBFC.
• Claiming principal repayment. Only the interest payable is deductible.
• Claiming the same interest twice. Section 132(4) blocks it, in the same or any other tax year.

Quick reference

Item	Detail
Section	132, Income Tax Act 2025
Who	Individuals only
Sanction window	1 April 2019 to 31 March 2023
Annual cap	Rs 1,50,000
Applies from	Tax year beginning 1 April 2019 and later tax years
Default regime	Not allowed unless the section 202(4) option is exercised
Overall limit	All Chapter VIII deductions together cannot exceed gross total income (s.122(2))

Other loan-interest deductions in the same Chapter have their own conditions. See our guides to the home loan interest deduction and the education loan interest deduction.

Where this is in the Act

• Section 132(1): deduction for interest on an EV loan from a financial institution
• Section 132(2): sanction window, 1 April 2019 to 31 March 2023
• Section 132(3): cap of Rs 1,50,000
• Section 132(4): no deduction under any other provision for the same interest
• Section 132(5): definitions of "electric vehicle" and "financial institution"
• Section 122(2): aggregate Chapter VIII deductions limited to gross total income
• Section 202(2)(a)(xii) and 202(4): default regime and the option to opt out

For CA firms managing many client files

For a practitioner, the work is spotting which individual clients still carry an EV loan from the 2019 to 2023 window, and checking that each one has opted out of the default regime before the deduction is claimed. Finexo's practice management software lets you keep sanction dates, loan documents and regime choices against each client and tracks the tasks and due dates around them. It does not compute tax or file returns for you.

This article is general information on the Income Tax Act 2025 and is not tax advice. Check your facts against the Act and a qualified professional before claiming.