The government, in a bid to promote India as a manufacturing destination for electric vehicles (EVs), is offering international manufacturers a reduced customs duty rate of only 15% for five years if they invest at least ₹41.5 billion (~$500 million) to establish manufacturing facilities in the country.

This relaxation is subject to certain conditions, such as only EVs with a CIF (Cost, Insurance, and Freight) value of $35,000 or above are eligible for import under this program. India currently levies a 70% to 100% tax on imported cars based on their value.

The concession will apply to completely knocked down units, which refers to cars delivered in parts and assembled at the destination. A maximum of 8,000 units can be imported annually, and there is an option to carry over unutilized annual import limits.

The number of EVs permitted for import will be capped at the total customs duty waived or the investment made, whichever is lower, with an upper limit of ₹64.84 billion (~$782 million), which is equivalent to the incentive provided under the Production-Linked Incentive (PLI) program.

Under the new EV policy, which aims to “strengthen the EV ecosystem by promoting healthy competition among EV players leading to high production volume, ” companies will have a three-year timeline to set up their manufacturing plants and commence commercial production in the country. During this initial phase, they must achieve a domestic value addition (DVA) of at least 25%.

The policy mandates that companies must ramp up their localization efforts, achieving a DVA of 50% within five years of commencing operations. The government says this step is crucial to nurturing the domestic EV ecosystem and supply chain.

While the government has set a minimum investment amount to avail the incentives, there is no cap on maximum investment, allowing companies to scale up their operations as per their business plans.

To ensure compliance, companies will be required to provide a bank guarantee against the customs duty forgone, which will be invoked if the DVA and minimum investment criteria are not met.

The policy’s overarching goal is multifaceted – to provide Indian consumers with access to the latest EV technology, boost the Make in India initiative, reduce crude oil imports and the trade deficit, and mitigate air pollution in cities, the government said in a press release.

Recently, the Ministry of Heavy Industries launched the Electric Mobility Promotion Program 2024 with a funding of ₹5 billion (~$60.34 million) for electric two-wheelers and three-wheelers, including e-rickshaws, e-carts, and L5 category vehicles.

As of September 2023, EV sales in India totaled 371,214 units, indicating a year-over-year increase of 40% compared to the 264,781 units sold in the corresponding period the previous year.