Supporting Electric Vehicles: India Budget 2019
This highlights the commitment of the government to drive green mobility in India.
Following the announcement of the FAME-2 policies in May this year, the annual budget enhanced the support for electric mobility and its development.
The key highlights of the budget in support of electric mobility are as follows
• The government will provide an additional income tax deduction of INR 1.5 lakhs on interest paid on loans taken for the purchase of electric vehicles. This provides a total benefit of INR 2.5 Lakhs to consumers who take a loan to buy electric vehicles.
• Import duty on parts for electric vehicles have been scrapped — such as drivetrains, onboard charger, compressor, charging cables, etc, can now be imported duty-free.
• The government will provide investment-linked income tax exemptions to encourage investment in new technologies like lithium-ion battery manufacturing, charging infrastructure, etc.
• The government has sent a proposal to the GST council to reduce GST from the current 12% to 5% for electric vehicles.
Income tax benefits on electric vehicle loans
Let’s take a look at a use case. Let’s assume you want to take a loan on an electric scooter, for example, Ather 450 which costs around INR 1,30,000.
Let’s assume, you take a loan of INR 1,00,000. Assuming interest of 13%, the interest paid per annum will be INR 13,000 for 3 years.
This means INR 4,333 per year. Tax benefit will be 30% of INR 4,333 — Assuming you fall in 30% income tax bracket.
Let’s take an electric car use case.
Assume you want to take a loan on an electric car, for example, Mahindra E-Verito which costs around INR 13,00,000.
Let’s assume, you take a loan of INR 9,00,000. Assuming interest of 10%, the interest paid per annum will be INR 90,000 for 5 years.
This means INR 18,000 per year. Tax benefit will be 30% of INR 18,000 — Assuming you fall in 30% income tax bracket.
This may not seem like much. But still is a benefit considering the impact of a large-scale shift to electric vehicles.
GST reduction
There is a proposal to the GST council to lower the GST rate on electric vehicles from 12% to 5%. This would be a huge benefit for manufacturers of electric vehicles. Although the GST council is yet to agree to this proposal, it will be a huge step towards taking the load off manufacturers.
Import Duty on components
Many components of electric vehicles like drivetrains, onboard charger, compressor, charging cables and other electronic components are imported by manufacturers.
Reducing these duties will give some relief to manufacturers, enabling them to channel more of their resources towards R&D and creating these components in India.
So, to sum it up, this is a milestone budget for electrics, taking some weight off consumers and manufacturers alike. To make India a manufacturing hub of Electric Vehicles, the decision to incentivize manufacturing by extending benefits is a move in the right direction. This will aid the creation of a local manufacturing base and encourage component manufacturers to invest in India.
