Budget 2019: Big push to EVs as government walks the talk

In a major push to electric mobility in the country, Finance Minister Nirmala Sitharaman on Friday announced a slew of incentives for the industry including income tax deduction on the interest on any loan on electric vehicle, lower import duty on a host of components and investment-linked income tax exemption for setting up manufacturing for solar electric charging infrastructure and lithium storage batteries.

"In order to boost economic growth and Make in India, the government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as lithium storage batteries and solar electric charging infrastructure and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits," said Sitharaman in her maiden Budget speech in the parliament. "Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts."

Electric mobility has been a major thrust area for the government that is keen to reduce the transport sector's dependence on imported fossil fuel. India imports nearly 84 per cent of its crude requirement every year. Still in its infancy globally, electric mobility in India has so far failed to take off for a lack of fiscal incentives. The decision to provide income tax exemption for loan on electric vehicles is expected to significantly reduce the gap between the price of a conventional petrol or diesel automobile and an electric vehicle. Government has already proposed reducing GST on electric vehicles from 12 to 5 per cent. GST on conventional cars in India right now ranges between 29-50 per cent.

"Government has already moved GST council to lower the GST rate on electric vehicles from 12 per cent to 5 per cent. Also to make electric vehicle affordable to consumers, our government will provide additional income tax deduction of 1.5 lakh on the interest paid on loans taken to purchase electric vehicles," she said. "This amounts to a benefit of around 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle."

The loan is required to be taken on or before March 31, 2023. As expected, the   announcements have enthused the domestic electric vehicle manufacturers.

"The proposal to lower the GST rate for EVs to 5 per cent and reduction in duties of EV components, which we are studying, is a welcome step. It will help in further narrowing down the cost of ownership gap against ICE vehicles," said Shailesh Chandra, President - Electric Mobility Business and Corporate Strategy, Tata Motors Ltd. "Additionally, private buyers, who were earlier not considered for a subsidy through FAME 2, will now have a reason to seriously consider an EV with the tax exemption of up to Rs 1.5 lakh."

"The announcements bring cheers to both consumers as well as e-vehicle manufacturers. To make India as an EV manufacturing hub, decision on incentivizing EV manufacturing by extending benefits under Section 35AD(1) is a move in the right direction. It will help in the creation of a local manufacturing base and encourage component manufacturers to invest in the sector," added Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles (SMEV). "Provision of additional income tax deduction of an amount up to Rs 1.5 lakh rupee on purchase of EVs would encourage customers to opt for EVs. Additionally, bringing down custom duty on lithium-ion cells to nil would further cut down the cost of batteries and help local battery manufacturers to scale-up the business."

Further, import duty on many electric components like E-drive assembly, on board charger, E-compressor and charging gun has been scrapped.

"The budget addresses the concern of the upfront cost of purchasing electric vehicles. This is the best example of a consumer driven change and is also how we envision the EV sector to achieve scale and growth," said Tarun Mehta, CEO, Cofounder, Ather Energy. "It now becomes imperative that OEMs chalk out plans that allow the industry to scale up and meet the demand for compelling products."

Also read: Budget 2019: How Nirmala Sitharaman's first Budget will help India become a $5 trillion economy

Also read: Budget 2019: Tax relief on auto loan! EVs to fetch Rs 1.5 lakh income tax exemption