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Union Budget 2019: Govt’s initiatives will boost adoption of electric vehicles, writes Gaurav Karnik of EY India

Union Budget 2019: Govt’s initiatives will boost adoption of electric vehicles, writes Gaurav Karnik of EY India

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  • The 2019 Union Budget has pushed significantly for adoption of electric vehicles and clean technologies as well as the infrastructure needed to make the EV dream a reality.
  • In order to boost demand for EVs the government has provided an interest deduction of up to Rs 1.5 lakh on loans taken for purchase of a first EV.

The Union Budget 2019 announcements made by finance minister Nirmala Sitharaman set a positive tone for the future of automotive industry and pave the path for environment-friendly vehicles and reduction in emission levels in line with the government’s ‘Swatchh Bharat’ initiative. The budget announcements will not only boost the Make in India agenda but also help move the needle towards adoption of electric vehicles (EVs).

The reduction in corporate tax rate to 25 percent for corporates having turnover up to Rs 400 crores is a welcome move and the government estimates that the lower tax rate now captures 99.7 percent of the total corporate base. From an automobile sector perspective this should help reduce cost thereby improve margins in a slow market.

The demand for increasing import duty on various auto components was one of the key demands from the automobile component segment to improve their competitiveness. Accordingly, the increase in import duty on certain auto components from 10 to 15 percent is a step in this direction and help domestic manufacturing in the country.

The government is determined to boost production and usage of EVs in India. Accordingly, the government has proposed to release a scheme which will make India a global manufacturing hub for sunrise and advanced technology sectors such as semi-conductor fabrication, solar photo voltaic cells, lithium storage batteries, solar electric charging infrastructure, etc.

In order to boost demand for EVs the government has provided an interest deduction of up to Rs 1.5 lakh on loans taken for purchase of a first EV. From an indirect tax perspective, the government has recommended to the goods and services tax (GST) council to reduce the GST rate to 5 percent from the existing 12 percent on EVs, and at the same time proposed exemption of customs duty on certain EV components.

Further, to discourage use of traditional petrol and diesel vehicles, the budget has also proposed to increase special additional excise duty and road and infrastructure cess by Re 1 per litre each. The Faster Adoption and Manufacture of (Hybrid and) Electric Vehicles) or FAME-II policy effective from April 1, 2019 coupled with the other measure in the Budget should push the industry towards adoption of EVs, boost capital investments and generate significant employment.

There was an expectation that there would be increased incentives for research and development coupled with reintroduction of deduction for capital asset purchases but the same have not been met in the budget.

On balance, in this budget the government has walked the talk on reduction of corporate tax rates — albeit not in totality — continued its ‘Make in India’ agenda, pushed significantly for adoption of electrical vehicles and clean technologies as well as the infrastructure needed to make the EV dream a reality.

Gaurav Karnik is tax leader for automotive practice at EY India

Source: cnbctv18
Anand Gupta Editor - EQ Int'l Media Network

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