Tax benefits aimed at incentivising domestic manufacturing
In a bid to boost participation of domestic industry in the clean energy sector, Union finance minister Nirmala Sitharaman in her Budget speech on February 1, 2020 proposed to impose customs duty on solar panels and electric vehicles. She also offered tax relief to clean energy generators. For solar panel and modules, she announced 20 per cent customs duty.
“Under Make in India initiative, well laid out customs duty rates were pre-announced on items like mobile phones, electric vehicles and their components. This has ensured gradual increase in domestic value addition capacity in India. Customs duty rates are being revised on electric vehicles and parts of mobiles as part of carefully conceived Phased Manufacturing Plans,” the minister said in her speech.
She also announced to increase customs duty on electric vehicles — 25-40 per cent on completely built buses and trucks. Customs duty on semi knocked-down (SKD) units of buses, trucks and two-wheelers will be increased to 25 per cent from 15 per cent. Customs duty on SKD units of passenger vehicles and three-wheelers will be increased from 15 to 30 per cent. The government also increased customs duty on completely knocked down (CKD) units of passenger vehicles, three-wheelers, two-wheelers, buses and trucks to 15 per cent from 10 per cent.
“This is a significant development when it comes to policy development related to the energy sector,” said Ashwin Gambhir of Prayas, a Pune-based non-profit. The fact that customs duty has been imposed on solar modules but not on solar cells means the government is trying to incentivise manufacturing in India, he added.
To help industrialists who are fresh to the renewable energy generation sector, the government has set only a 15 per cent tax rate. Anish De of KPMG says this will help power generation to increase and the cost of power to reduce.
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