GST on Electric Vehicles Reduced to 5%, Tax Benefits Up to Rs. 1.5 Lakh on EV Loan: India Union Budget 2019

To promote EVs in India on a larger scale, the Indian government in its Union budget today (5th July 2019) announced a reduction in GST from 12% to 5% for the electric vehicles sold in India. To make EVs more affordable for Indian consumers, the Indian government will also provide an additional income tax deduction of Rs. 1.5 lakh on the interest paid on the loans taken to purchase EVs.

MarketsandMarkets™ Viewpoint:

Atul Kumar – Assistant Manager : Automotive & Transportation Research at MarketsandMarkets™, shares his point of view as mentioned below:

Factors such as the rising demand for zero-emission vehicles, stringent emission norms, and government initiatives to promote electric vehicles are driving the growth of the automotive electric vehicles market globally. In 2018, China registered a total sale of more than 2 million EVs, comprising BEVs and PHEVs only. The Indian government also has been trying to boost the EV sales in the country. The government has announced financial support under a scheme called Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India). Recently, in March 2019, the government announced the second phase of FAME, known as FAME – II, which includes setting up of 2,700 charging stations in metro cities and in some of the towns with a population of more than one million. The scheme would also offer EV purchase incentive to 10 lakhs two wheelers, 5 lakhs three wheelers, 55,000 four wheelers, and 7,000 buses. Also, the Indian government plans to make it mandatory for cab-hailing companies such as Ola and Uber to have 40% of their fleet as electric vehicles. These policies have led to an increase in electric vehicle production volumes over the years globally, which caters to both the domestic and the overseas demand.

India EV Market
e- Estimated; p- Projected

Source: MarketsandMarkets™ Analysis


The Government of India encourages foreign investments in the automobile sector and allows 100% FDI under the automatic route. The significant initiatives taken by the Indian government are as follows:

  • In its annual budget 2019, the government announced that there will be a reduction in GST for electric vehicles. The GST has been reduced from 12% to just 5% now.
  • In its annual budget 2019, the government also announced that there will be an income tax deduction/rebate of Rs. 1.5 lakh on the interest paid on the loans taken to purchase EVs in the country.
  • Under NATRiP (National Automotive Testing and R&D Infrastructure Project), the Government of India is planning to set up R&D centers at a total cost of USD 388.5 million to enable the Indian auto industry to be at par with the global standards.
  • The Ministry of Heavy Industries has shortlisted 11 cities in the country for the introduction of electric vehicles in their public transport systems under the FAME scheme. The government will also set up incubation centers for the startups working in the electric vehicles space.
  • In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of INR 10,000 crore (USD 1.39 billion) for the FY 2020–22.


With the increasing R&D in the field of electric vehicles and the increasing support from the Indian government, it has been expected that India will become a significant EV market very soon. To promote EVs in the country, the Indian government provides support in the form of easy loan, tax rebates, and investment opportunities for the companies establishing their plants in the country. Most of the EV experts in India also believe that the bringing down the customs duty on important EV components such as motors and lithium-ion cells to nil will cut down the cost of batteries and will also help local battery manufacturers to scale-up their EV business in India.

The Indian government has also cleared its intention that now it will be promoting only electric vehicles, whether it is 2-wheeler, 3-wheeler, passenger car or commercial vehicle, in the country. MnM also expects that there will be soon a mandate from the government allowing only electric 2-wheeler sales in the country post 2025. Along with these developments, the improvement in charging infrastructure will also motivate the Indian consumer to buy electric vehicles. As the cost of ownership and the cost per Km are very less in an electric vehicle, a huge demand for EVs in the Indian market is expected very soon.

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