Electric vehicles have been steadily gaining popularity in India with leading automobile manufacturers and new startups making a foray into the segment. The government has been working to promote electric vehicle adoption through various schemes, discounts, and tax benefits. This push is expected to gain further momentum in the upcoming Union Budget 2023, which will be presented by Finance Minister Nirmala Sitharaman on February 1.
The electric vehicles’ industry has seen a record rise in 2022 with over 4 lakh units sold in the financial year, according to government data. In FY21, the total EV sales stood at nearly 1.36 lakh units.
In 2019, the government, in the 36th GST Council Meeting, slashed the Goods and Services Tax (GST) rate on all electric vehicles from 12% to 5%. GST was also reduced to 5% from 18% on chargers and charging stations for electric vehicles.
However, lithium-ion batteries, which power the engine of an electric vehicle, are subject to a higher GST rate of 18%. Lithium is largely imported from China, due to which import duty and customs duty are also applied to this crucial raw material of the EV industry.
One of the demands of the electric vehicle industry is to bring the GST rate down for components of these vehicles, including the batteries, so that the overall cost of the vehicle can be reduced.
“The taxation on EVs and components like batteries must be lowered so that the vehicles can be made more affordable for the masses. For instance, the GST on Advanced Chemistry Cell batteries is expected to be reduced to 5% which will make it at par with the GST on EVs,” Tushar Choudhary, founder and CEO, Motovolt Mobility, was quoted as saying by Business Today.
The government had introduced the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India) scheme in 2015 to promote electric vehicles and ensure the growth of the sector through incentives. The Phase II of the FAME India scheme was implemented with an outlay of Rs 10,000 crore for three years starting from April 1, 2019.
This means that the scheme will expire in March 2024. Increasing the timeline of the scheme could give a boost to the electric vehicle industry.
“Such policy stability will eventually boost EV adoption in the country,” Sachidanand Updadhyay, MD and CEO, Lord’s Mark Industries, was quoted as saying by Moneycontrol.
In September 2021, the Production Linked Incentive (PLI) scheme was approved for the automotive sector with a budget of Rs 25,938 crore. Electric vehicles were also brought under the scheme. The scheme was also extended to the manufacturing of Advanced Chemistry Cell (ACC) with an outlay of Rs 18,000 crore.
The EV makers expect the government to extend the benefits under the PLI and FAME Phase II schemes while rationalising the GST rate on the components in the upcoming budget.