Budget 2019: Nirmala Sitharaman reduces GST for EVs to 5pc, announces tax benefits up to Rs 1.5 lakh on EV loan

The Union Budget 2019 by Finance Minister Nirmala Sitharaman announced the reduction in GST from 12 percent to five percent for electric vehicles. The government’s commitment to EV adoption remains the same with the FAME II scheme.

In her maiden Budget speech, Finance Minister Nirmala Sitharaman made a slew of announcements to encourage electric vehicle (EV) manufacture and adoption in India, including a reduction of Goods and Services Tax (GST) for EVs, from 12 percent to five percent. She added there would be an exemption of customs duty on EVs, as well as additional income tax deduction of Rs 1.5 lakh on the interest paid on loan for purchasing EVs.

(Image: Anisha Tulika)

On Friday, Sitharaman also stated that Rs 10,000 crore had been approved by the government on April 1 for the Faster Adoption and Manufacture of Electric Vehicles (FAME) II scheme. Further, the government had approved subsidies for the manufacture of solar energy storage and photo voltaic cells.

The Economic Survey 2018-19 tabled by the Finance Minister in Parliament on Thursday had noted that the country must emphasise on EVs, as they represented the next generation in sustainable mobility, and appropriate policy measures were needed to lower the overall lifetime ownership costs to make them an attractive alternative to consumers.

The Survey also stated that India could emerge as a manufacturing hub for EVs, and that policies need to be formulated for charging standards and infrastructure in the country.

The subsidies announced under the FAME II scheme are for companies that have advanced battery management systems. This also includes charging infrastructure companies that make their own battery management systems.

These announcements brings much hope to startups that YourStory has been covering: GoGreenBov, Ather Energy, Polarity, Ultraviolette, Oxra Technologies, Tork, etc. These startups have all built battery management systems.

For consumers, too, there are subsidies claimed by the manufacturer and passed on to users. Electric two-wheelers below Rs 1.5 lakh will be subsidised to the tune of Rs 20,000 per vehicle. A subsidy of Rs 50,000 has been announced for three-wheelers with a price tag of Rs 5 lakh, and a subsidy of Rs 1.5 lakh for electric cars that are priced up to Rs 15 lakh and made in India.

This shows the present government’s thrust on electric vehicle usage in the country. The Niti Aayog has proposed to the government that all three-wheelers in the country will be electric by 2023, and that all two-wheelers have to be electric from 2025, while all four-wheelers have to be electric from 2030.

"Electric vehicles are the future because we EV entrepreneurs have built original IP in software and hardware," said Dhivik Ashok, Founder of GoGreenBov.

Dhivik added that many startups/corporate houses would now be coming into the space, which was encouraging. However, he cautioned, "The lack of knowledge and business ideas will have a lot of them fall off the grid as well. But the support of the government will help in the faster the adoption of EVs."

Tarun Mehta, CEO, Co-founder, Ather Energy, said:  “This is a major boost for end consumers to purchase EVs. It addresses the concern of the upfront cost of purchasing electric vehicles, and is the best example of a consumer-driven change. This is how Ather envisions the EV sector to achieve scale and growth. It now becomes imperative that OEMs chalk out plans that allow the industry to scale up and meet the demand for compelling products.”

Driving in change

The Society of Indian Automobile Manufacturers (SIAM), which is the nodal body for the Indian automobile industry, reports that the country currently sells close to 750,000 electric vehicles a year. A majority of these are three-wheelers, which sold 6,30,000 units, while 1,26,000 two-wheelers are on the road. Cars sold a dismal 3,500 units. In 2018, the entire Indian EV industry saw sales of only 56,000 units.

Bigger players like M&M, Maruti Suzuki, Tata Motors, and Hyundai will all plan electric cars soon. Hyundai is already testing the electric SUV Kona in India. Mahindra & Mahindra has a full suite of EV services with the acquisition of Chetan Maini’s Reva.

However, charging infrastructure is needed for the rapid growth of EVs and the government has not announced any subsidies in this regard. But since the battery management systems for charging are made in India, they may fall under the FAME subsidy.

Chetan Maini himself has been expanding his new company, Sun Mobility, which provides charging infrastructure across the country. At present, it has been working with SmartE to set up battery swap stations for EVs in Delhi.

While Europe is pioneering the world in using electric vehicles, India too is moving fast in EV adoption because it reduces our dependence on oil, thereby improving the country's balance of payments. With the government supporting the solar energy industry, the growth of EVs is imminent. Go electric, go green.

(Edited by Evelyn Ratnakumar)