In a move to promote green transportation, the budget has proposed to provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. Further, the government has exempted customs duty on certain parts of electric vehicles to boost the manufacturing of e-vehicles in the country.

The budget has allocated Rs 10,000 crore to the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme.

She said the government will also provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles (EV) in a move to make EVs affordable to consumers. This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase electric vehicle, said Sitharaman. The government has also moved the GST Council to lower the GST rate on electric vehicles to 5 per cent from 12 per cent, she added.

“Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of electric vehicles,” she said.

Rajan Wadhera, president at Siam, said, “The automotive industry is happy that the finance minister has extended wholehearted support to electric mobility but this will not help the automotive industry in emerging from the current steep slowdown it is facing today.”

“But these moves cannot significantly improve EV’s competitiveness against conventional vehicles in the price-sensitive Indian market,” Deepesh Rathore, director at consulting firm Emerging Markets Automotive Advisors, said.

While a GST reduction still keeps EVs firmly out of the price range of all auto segments, “no existing EV model (in the country) needs a loan big enough that the interest would come anywhere close to Rs 2.5 lakh”, he said.

Her announcement comes close on the heels of Niti Aayog proposing to migrate to full electric vehicles for two-wheelers of engine capacity of up to 150cc and three-wheelers by 2023 and 2025, respectively.

Duty waiver

On exempting customs duty on certain parts of EVs, Sitharaman said, “Only advanced battery and registered e-vehicles will be incentivised under the scheme with greater emphasis on providing affordable and environment friendly public transportation options for the common man.”

Analysts pointed out that China is the biggest global exporter of these cells and India does not have the natural resources to produce on its own. By reducing GST the government is trying to increase demand and by pulling down the import duty it is trying to cut down the cost to build EV parts in India, they said.