How India stacks up against other nations in terms of EV tax breaks, incentives

Countries across the world are increasingly advocating the adoption of electric vehicles (EVs) and moving away from internal combustion engine (ICE) vehicles. By eliminating vehicular emissions, nations can go a long way towards destination net zero before 2040.

Governments are offering tax breaks, sops, discounts and subsidies to EV buyers. However, some countries like India, while offering several incentives for domestic purchases, charge exorbitant duties on imported vehicles in order to protect the domestic industry.

Maldives (111 percent), India (106 percent), Iran (90 percent), Thailand (71 percent), and Pakistan (70.7 percent) charge the highest tariffs on automobile imports, while the average tariff on import of vehicles is 22 percent globally, according to the Observatory of Economic Complexity (OEC).

While such protectionist tariffs may level the playing ground for domestic manufacturers, they also keep imported EVs well beyond the reach of the average buyer.

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EV penetration in European car markets has steadily increased due to concerted efforts of the European Union (EU) member states that offer benefits and tax breaks for electric vehicle buyers. While the share of EVs is currently 7.5 percent in the European market, strong incentives are expected to push growth.

Out of the 27 EU member states and the UK, 26 nations offer either incentives or tax breaks, or both for the purchase of EVs. Lithuania is the only member state that offers neither. Belgium, Bulgaria, Cyprus, Denmark, Latvia, and Malta offer tax breaks and reductions but provide no financial incentives.

Countries like Netherlands, Austria, the UK and Hungary provide total tax exemptions on the purchase of EVs.

EV sales dwindled in the US over the course of the pandemic due to the economic turmoil caused by COVID-19 restrictions and one of the worst joblessness crises in the country. The country’s federalised structure leads to wildly varied policies towards EVs in general, even as EVs represent 2 percent of annual light vehicle sales.

Worried about the loss of revenue from gasoline taxes, some states have imposed additional fees for the registration of EVs. These fees range from $50-225 a year, with states like Alabama, Arkansas, Hawaii, Illinois, Iowa, Kansas, North Dakota, Ohio, Washington and Wyoming being some of the 28 states that charge additional fees on EVs.

At the same time, 45 states and the District of Columbia provide varied incentives for the purchase of EVs, and at the national level, the country offers a tax credit of up to $7,500 on income tax for the purchase of any EV made after 2010.

Since 2010, China has made a focused effort to turn the country into a hub for the production and end-use of EVs. While several schemes and incentives existed in the past to bolster the sector, the nation had reduced subsidies for EVs. But after the COVID-19 pandemic had an adverse impact on the sector, the country extended subsidies and tax breaks once again.

China offers an incentive of 25,000 renminbis per vehicle for NEV manufacturers, while EV buyers are exempt from any purchase tax.

The Centre has taken steps to promote the use of EVs and also urged state governments to incentivise the purchase of EVs in order to meet its commitments set out in the Paris Climate Accords. The Ministry of Road Transport and Highways (MoRTH) in August announced that EVs will be exempt from “the payment of fees for the purpose of issue or renewal of registration certificate.”

The government had also in previous years reduced the GST component on EVs to 5 percent.  Under the Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME-II) policy, four-wheel EVs can get a maximum subsidy of Rs 1.5 lakh while two-wheelers can get a subsidy of up to 40 percent of their purchase price.

Also read: Check out which state offers the most subsidies for electric vehicle makers, buyers

First-time buyers can also claim tax benefits of up to Rs 1.5 lakh under Section 80EEB of the Income Tax Act, for instalments paid towards the purchase of an EV.

Additionally, state governments are also offering several incentive schemes and subsidies on purchases of EVs, which stand separate from those provided under FAME-II.

Maharashtra offers a maximum subsidy of Rs 2.5 lakh on electric cars and SUVs, while Delhi, Gujarat, Assam, Bihar, West Bengal offer subsidies of a maximum of Rs 1.5 lakh. Odisha also offers a subsidy of Rs 1 lakh while Meghalaya offers a subsidy of Rs 60,000. Delhi, Maharashtra, Meghalaya, Gujarat, Assam, Bihar, West Bengal, Rajasthan and Odisha also offer subsidies ranging from Rs 5,000-30,000 towards the purchase of electric two-wheelers.

Under their EV policy, most of these states also offer complete exemption on road taxes for EVs. Rajasthan, Andhra Pradesh, Karnataka, Madhya Pradesh, Telangana, Tamil Nadu, Uttarakhand, Punjab and Uttar Pradesh also offer complete exemption on road taxes for EVs but offer no direct or indirect subsidies.

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