Budget likely to charge up electric vehicle push with tax incentives

The govt is also examining extension of tax holiday for units operating or planning to set up operations in special economic zones.

With promotion of clean energy high on government agenda, the upcoming Budget 2019 is likely to incentivise manufacturing of electric vehicles (EVs) in the country.

This is also expected to drive foreign direct investment or FDI into the country.

In line with the government’s road map for EVs in the next four years, the Budget may offer investment-linked incentives to manufacturers with respect to capital expenditure incurred for setting up operations, according to officials in the know.

“With a clear timeline to switch to clean energy vehicles, we are examining tax incentives to encourage players into the EV segment. Besides operations, investment in technology transfers and R&D will also need to be encouraged,” said a government official.

The Budget for FY20 may allow deduction on account of capital expenditure incurred for setting up business under Section 35AD(1) of the Income Tax Act for environment friendly EVs. The move will help bring down tax liability of such firms, leaving them with more income to invest in technology transfers.

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The move goes in hand with other measures to promote the sector, such as proposed reduction in the goods and services tax (GST) rate for EVs to 5 per cent from 12 per cent and that for its batteries from 18 per cent to 12 per cent.

The matter is currently with the fitment committee and a decision will be taken on this in the next GST Council meeting.

The government is also examining extension of tax holiday for units operating or planning to set up operations in special economic zones (SEZs), beyond the sunset date of 2020, for a few sectors, including EVs. The move will encourage foreign EV players with expertise to set up manufacturing base in the country and export to rest of the world. It will also aid swifter skill transfer to domestic players.

Section 10AA of the Income Tax Act, 1961, provides for tax exemption on profits made from export by a unit set up in an SEZ.

The exemptions include deduction of 100 per cent export-related profit for first five years and 50 per cent for the next five years.