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The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman addressing a Post Budget Press Conference, in New Delhi on July 05, 2019. The Minister of State for Finance and Corporate Affairs, Shri Anurag Singh Thakur and the Secretary, Finance and Department of Economic Affairs, Shri S.C. Garg are also seen.

Cars

India Offers US$2,200 In Tax Incentive On Electric Car Purchase

The Indian government has finally taken a concrete measure to boost sales of electric cars in the private sector.

The Indian government has finally taken a concrete measure to boost sales of electric cars in the private sector.

In its first financial budget announcement after a thumping win in the recent general elections, the Narendra Modi government has announced a slew of measures to promote sale of electric cars in the private segment. Apart from direct benefit to buyers of electric cars the government also announced measures to support manufacturing of lithium-ion batteries for electric mobility.

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman addressing a Post Budget Press Conference, in New Delhi on July 05, 2019. Image: India Press Information Bureau

Delivering the budget speech at the Indian Parliament, Finance Minister Nirmala Sitharaman announced that her government will now allow a tax deduction on loan taken by citizens to purchase electric cars. The tax deduction limit has been set at Rs 1,50,000 (~ US$2,200) without any relation to the class or cost of the electric car purchased. According to the government, a buyer would be able to reap tax benefits of Rs 2,50,000 (~US$3,650) over the entire tenure of the loan through this newly announced incentive.

Sitharaman informed Parliament again that her government has proposed to reduce the Goods & Services Tax (GST) on electric vehicles from 12% to 5%, the lowest tax slab. A final decision on this tax reduction would taken by the GST Council, a committee of finance ministers of all the states of India.

The tax deduction on purchase of electric cars is a major, and much-needed, incentive for the private consumer segment. The government has already operationalized the FAME-II scheme with incentives worth Rs 10,000 crore (US$1.5 billion) available to EV buyers in the commercial segment, however, little to no incentives were available for buyers in the private segment.

Under the FAME-II scheme, commercial buyers are eligible for direct financial subsidies of up to Rs 1,87,00 (~ US$2,730) on purchase of select electric car models and up to Rs 61,00,000 (~ US$81,300) on purchase of a Volvo hybrid electric bus. A wide range of incentives are also available for two and three-wheel electric vehicles that dominate the Indian electric mobility market.

To further promote the use of electric vehicles in the country, Sitharaman also proposed to exempt certain parts of electric vehicles from customs duty. These parts include the e-drive assembly, on-board charger, e-compressor and charging devices.

While India does have a a few pure electric and hybrid electric cars there are no financial incentives on offer to attract the private customer segment. The most widely used electric sedans — Mahindra’s eVerito and Tata Motors’ eTigor — are currently available only for the commercial segment with subsidies under the FAME-II scheme. These are either being used by government agencies or by cab aggregators.

The new incentives proposed the financial budget would be implemented as soon as Parliament approves it, and the President of India signs it.

 
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Written By

Smiti works as a senior solar engineer at a reputed engineering and management consultancy. She has conducted due diligence of several solar PV projects in India and Southeast Asia. She has keen interest in renewable energy, green buildings, environmental sustainability, and biofuels. She currently resides in New Delhi, India.

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