Tax Cut Likely to Boost Domestic Production of EV Parts

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FM announced that new domestic manufacturing companies incorporated after October 1 will pay the income tax at the rate of 15 percent.
⦁ Sitharaman also announced tax relief for the purchase of electric vehicles in her maiden FY19-20 budget.
⦁ There is no customs duty on imports of capital goods required to establish lithium cell manufacturing unit.

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Diwali came early for India Inc as Finance Minister Nirmala Sitharaman slashed the effective corporate tax from 30 percent to 25.17 percent, inclusive of all cess and surcharges for domestic companies. Not only this, but Sitharaman also announced that new domestic manufacturing companies incorporated after October 1 will pay the income tax at the rate of 15 percent. This means the effective tax rate will be 17.01 percent, inclusive of all surcharge and cess.

This announcement seems to benefit India’s electric vehicle industry as it will help to spur the domestic production of lithium-ion batteries and electronic parts. The Indian automobile sector is one of the most prominent sectors of the country and growth in this sector has led to a surge in demand for electric vehicles which has also supplemented the growth of lithium-Ion batteries.

What industry has to say?
Vinnie Mehta, director-general of Automotive Component Manufacturers Association of India (Acma) told Livemint that the manufacturing companies will look at increasing localization of components in India under the newly announced tax regime for new units and overall manufacturing activities will get a boost.

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Rajeev Singh, partner at Deloitte Touche Tohmatsu India Llp told Livemint that this could help attract investment in a few select sunrise industries around lithium-ion batteries, charging equipment and power electronics.

He also added that there are quite a few global players who are evaluating manufacturing in India and this decision should help in building a stronger business case.

Steps taken to boost EV industry
Earlier, the government has already allocated Rs 10,000 crore for Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme to encourage EV manufacturing and adoption in India and the GST rate on electric vehicles has been reduced to 5 percent from 12 percent.

In addition, there is no customs duty on imports of capital goods required to establish lithium cell manufacturing unit. Finance Minister Nirmala Sitharaman also had in her FY19-20 budget announced tax relief for the purchase of electric vehicles too.

Key Players
A report by Qurate Business Intelligence identified Future Hi-Tech Batteries, Reliance Industries Limited, JSW Group, Adani Enterprise Ltd, Mahindra & Mahindra Limited, Suzuki Motor Corp., Toshiba Corp., Denso Corp., Samsung SDI Co. Ltd., Panasonic Corporation, Toshiba Corporation, Hitachi Chemical Co. Ltd and Bharat Heavy Electricals Ltd as the key players in the lithium-ion battery in India.

By Tanya Aneja

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