Electric vehicles (EVs) and imported vehicles will now become dearer as the Budget has increased the rate of customs duties.

For vehicles (including EVs) in semi-knocked down (SKD) form, the rate has been revised from 30 per cent (+3 Social Welfare Surcharge or SWS) to 35 per cent (+Nil SWS) now. SWS is calculated at the rate of 10 per cent on the aggregate of duties, taxes and cesses that are levied and collected under section 12 of the Customs Act, 1962.

Similarly, for vehicles in completely built unit (CBU) form, other than with cost, insurance and freight (CIF) more than $40,000 or with engine capacity more than 3000cc for petrol-run vehicle and more than 2500cc for diesel-run vehicles, or with both, the duty has been increased to 70 per cent (+Nil SWS) from 60 per cent (+6 SWS) earlier.

Similarly, for electrically operated vehicle in CBU form, other than with CIF value more than $40,000, the duty has been increased to 70 (+Nil SWS) per cent from 60 per cent (+6 SWS).

Domestic industry growth

“The change in basic custom duties is going to impact the pricing of some of our select cars like the S-Class Maybach and select CBUs like GLB and EQB, making them dearer. However as we locally manufacture most of our models, this will not affect 95 per cent of our portfolio,” Santosh Iyer, Managing Director and CEO, Mercedes-Benz India, said.

The higher import duty is expected to make imported EVs more expensive for consumers, thereby increasing demand for domestically produced ones. The aim of this move is to promote local production and encourage the growth of the domestic EV industry, said Amit Maheswari, Tax Partner at AKM Global.

“However, the GST rate in India on EVs is currently set at 5 per cent and the rate for lithium-ion batteries, which is an essential component of EVs, is 18 per cent. This results in an inverted duty structure, where the key input for the manufacturing of EVs is taxed at a higher rate than the end product which creates a disadvantage for domestic manufacturers, making it more challenging for them to compete with imported EVs,” he added.

Meanwhile, the government has allocated adequate funds to scrap old vehicles owned by Centre and States will also be supported in replacing old vehicles and ambulances. Replacing old polluting vehicles is an important part of greening the economy, Nirmala Sitharaman, Finance Minister said.