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The Indian government has given the green light to a new electric vehicle scheme with tax relief aimed at positioning India as a prime manufacturing hub. This comes at a time when the Asian nation seeks to attract foreign money for local production from the likes of Tesla.

India plans to lower import taxes on select EVs for companies committing to investments of over $500 million and establishing manufacturing facilities within three years. This landmark decision not only aims to attract heavyweights like Tesla but also underscores India’s stance in attracting foreign investment to drive local production.

“The policy is designed to attract investments in the e-vehicle space by reputed global EV manufacturers,” the government said in a statement.

While the scheme needs a minimum investment of Rs 4,150 crore or $500 million, there is no upper threshold for investments from EV manufacturers to pave way for advanced technology to be locally produced in India that is bolstering its Atmanirbhar Bharat initiative.

For vehicles with a minimum CIF (Cost, Insurance, and Freight) value of $35,000, a 15% customs duty (as applicable to Completely Knocked Down units) will be levied for a duration of five years, subject to the manufacturer setting up manufacturing facilities in India within a 3-year period. The duty foregone on the total number of EVs permitted for import will be capped at the investment made or ₹6,484 crore (equal to incentive under PLI scheme). Additionally, a maximum of 40,000 EVs, at a rate not exceeding 8,000 per year, will be allowed if the investment surpasses $800 million.

Manufacturers will be required to establish manufacturing facilities in India within a three-year timeline and commence commercial production of EVs. They must achieve a domestic value addition (DVA) of at least 50% within five years. Moreover, a localisation level of 25% by the third year is mandated.

The scheme also requires companies to back their investment commitments with a bank guarantee, which will be enforced in case of non-compliance with DVA and minimum investment criteria.

Tata Motors and Mahindra & Mahindra, major Indian players, had voiced concerns about reduced EV taxes, emphasising the need for early-stage government support. These manufacturers worry about increased competition from globally favored high-end EVs due to tax cuts.

Tesla’s request for an initial tariff concession, aiming to offset customs duties by 70% for cars priced under USD 40,000 and 100% for higher-priced cars, has been a focal point of discussion.

India’s Commerce and Industry Minister Piyush Goyal had however affirmed that India will uphold its policies independently, without tailoring them specifically to accommodate requests from US electric vehicle (EV) maker Tesla.

He had emphasized that India’s laws and tariff regulations are designed to attract all-electric vehicle manufacturers worldwide to establish a presence in the rapidly expanding Indian economy.

  • Published On Mar 15, 2024 at 06:40 PM IST

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