Union Budget 2023 gives EVs a big charge; boosts vehicle scrappage

Centre and states to provide 25% tax rebate on road tax for vehicles purchased to replace scrapped ones

Finance minister Nirmala Sitharaman, in her Budget speech on Wednesday, focussed on green energy and electric vehicles. Sitharaman extended Customs duty exemption for the manufacture of lithium-ion batteries and introduced more sops to boost vehicle scrappage.

She also announced viability gap funding (VGF) for battery energy storage system (BESS) projects with a capacity of 4,000 MWh.

On the other hand, Customs duty on premium vehicles that come in completely-built units (CBUs) has been hiked to 70 per cent. These include cars costing less than $40,000 or with engine capacity less than 3,000 cc for petrol vehicles and less than 2,500 cc for diesel vehicles.

“To further provide impetus to green mobility, Customs duty exemption is being extended for the import of capital goods and machinery required for manufacturing lithium-ion cells or batteries used in electric vehicles,” Sitharam said in her Budget speech.

“The Customs duty on imported vehicles with invoice value less than $40,000 has increased from 66 per cent (including cess) to 70 per cent for CBUs and from 33 per cent (with cess) to 35 per cent for SKD (semi-knocked down) vehicles. This can lead to increase in the end-customer price within the premium and luxury segment. The ex-showroom price after loading the top GST bracket for cars and accounting for margins can go up by 1-2 per cent if the OEM (original equipment manufacturers) passes this in entirety,” said Rajat Mahajan, partner, Deloitte India.

As part of the vehicle scrappage policy 2022, the Centre and state governments will provide 25 per cent rebate on road tax for vehicles purchased to replace old ones.

Sitharaman said that in addition to the vehicle scrappage policy announced in Budget 2021-22, more funds have now been allocated to support efforts to scrap old vehicles under the central government. “States will also be supported to help them scrap old vehicles and old ambulances,” Sitharaman said.

“The announcement of VGF for BESS projects with a capacity of 4,000 MWh will help advance battery projects in India and support higher renewable adoptions for the grid. This will help Solar Energy Corporation of India (SECI), NTPC and various state agencies to come up with more battery storage projects in India,” said Debi Prasad Dash, executive director, India Electronics and Semiconductor Association (IESA). Customs duty exemption for capital goods used to manufacture lithium-ion batteries will further boost the sector and production-linked incentive (PLI) schemes.

The sector also saw a proposed investment of about Rs 74,850 crore under the PLI scheme, giving a push to local manufacturing. The PLI scheme was launched in May 2021 to bring down prices of key EV components like batteries. Later in September 2021, the scheme was extended for electric vehicles.