On the back of its new electoral mandate, the Modi Sarkar 2.0 government presented its first budget on 5 July 2019 (for further details please see "Budget 2019: a box of possibilities").(1) The budget focuses primarily on infrastructure spending and boosting investment from private and foreign investors, with the government forecasting that the Indian economy will grow to $5 trillion by 2025, almost twice its current size. Following the budget announcement, a slew of reforms and policies are expected in the coming months, including a draft of the much-awaited Direct Tax Code, which aims to overhaul the existing direct tax law.
This article highlights the amendments regarding electric vehicle (e-vehicle) manufacturing.(2)
In 2015 the government introduced an incentive scheme to promote the manufacturing of electric and hybrid vehicle technology and ensure its sustainable growth. While the scheme has had limited success to date, its second phase, which commenced on 1 April 2019, aims to provide consumers with upfront incentives to purchase e-vehicles. To meet this goal, Budget 2019 proposes to:
- reduce the goods and services tax on e-vehicles from 12% to 5%;
- provide an additional income tax deduction of Rs1.5 million on interest paid on loans taken to purchase e-vehicles; and
- waive customs duty on e-vehicle parts, such as e-drive assembly parts, onboard chargers, e-compressors and charging guns.
Further, the finance minister has stated that the government will:
- launch a scheme to invite global companies, through a transparent competitive bidding process, to establish mega-manufacturing plants to develop sunrise and advanced technologies (eg, semiconductors, solar photovoltaic cells, lithium storage batteries and solar electric charging infrastructure); and
- offer such companies tax incentives.
All of these efforts are an attempt to fulfil India's commitment to switch to e-vehicles by 2030. These measures, coupled with other related activities – such as establishing charging stations for e-vehicles and creating necessary infrastructure like roads and highways – should give India's e-vehicle economy a major boost.
(1) This article is part of a series on the key changes introduced by Budget 2019. For further details, please see "Union Budget 2019: key tax highlights".
(2) Further information is available here.
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