Centre approves new EV policy with tax relief giving push to Tesla entry plans  

The Centre on Friday announced a new electric vehicle (EV) policy that will be coming with tax relief, which is expected to provide a major boost to companies like Tesla, Vinfast that have plans to start operations in India.

As part of the new policy, the government will lower import taxes on certain electric vehicles for companies that commit to at least $500 million in investment in addition to building a domestic manufacturing facility in the country. The policy is aimed at positioning India as a prime manufacturing hub.

"The policy is designed to attract investments in the e-vehicle space by reputed global EV manufacturers," the government said in a statement.

The scheme needs a minimum investment of Rs 4,150 crore or $500 million, while there is no upper limit for investments from EV manufacturers to pave way for advanced technology to be locally produced within the country.

The companies will also be granted a three-year period to establish local manufacturing facilities for electric vehicles (EVs).

The policy stated that 25 per cent of components sourced locally. The manufacturers will have a maximum 5 years to reach 50 per cent domestic value addition (DVA), failing which the bank guarantee will be invoked.

In addition to the benefit for EV players choosing to set up their plant in India, the centre will allow limited import of cars at a lower custom rate.

It added 15 per cent customs duty will be applicable on vehicles of minimum CIF value of $35,000 and above for a total period of 5 years, provided the manufacturer meets the three-year deadline.

This marks a significant reduction from the current import tax of 70% or 100%, depending on the value of the car. This move could potentially bolster Tesla’s market entry plans.

Under the policy, the total number of EVs that will be allowed for import will be ascertained by the total duty foregone or investment made, whichever is lower, subject to a maximum of Rs 6,484 crore. This is same as the incentive under the PLI scheme.

Under this policy, not more than 8,000 EVs per year would be permissible for import, with the carryover of unutilised annual import limits permitted.

Companies’ investment commitments will have to be backed up by a bank guarantee instead of the customs duty forgone. The bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines.