Union Budget 2023: Imports of Li-ion Battery Machinery Exempted From Customs Duty

Finance Minister (FM) Nirmala Sitharaman announces the exemption on the import of capital goods and machinery required to manufacture Lithium-ion batteries from customs duty. The industry has persistently tabling such tax breaks.

Additionally, FM Nirmala Sitharaman extended the 5 per cent concessional custom duty on battery cells for a another year in an effort to increase Indian manufacture of Li-ion cells, which are now primarily imported from China.

Commenting on the announcement, Pratik Kamdar, Co-founder Neuron Energy, told BW Businessworld, "The Customs Duty exemption on capital goods and machinery to manufacture li-ion will be a facilitator for the country to transition to sustainable and eco-friendly mobility. The exemption will have a domino effect on the overall sector with the over substantial decrease in the overall cost of the finished products wherein the battery packs are likely to reduce by 5 per cent coupled with lower initial investments."

According to the government's scrapping policy, it would assist state agencies in replacing outdated, polluting vehicles, which the EV industry believes will encourage more people to choose electric vehicles as a substitute.

Kamdar added that the vehicle scrapping policy will also be beneficial if the old vehicles are replaced by electric vehicles. This will further aid in the country’s vision of mass EV adoption by 2030.

Customs charge on semi-knocked-down electric vehicle models, which primarily refers to imported automobiles, has been raised from 30 per cent to 35 per cent, which would encourage more consumers to prefer products made in India.

Duty on fully assembled EVs costing more than $40,000 has been raised from 60 per cent to 70 per cent. The government, however, failed to met expectations (FAME II) subsidies.

The industry leaders hoped that government would standardise GST on all EV spare parts, expand the scope of FAME to include e-trucks and tractors. All theses initiatives had the potential to increase the EV penetration rate drastically.

Appraising the move, Pankaj Sharma, Co-founder and Director, Log9 Materials, told BW Businessworld, "The government’s decision to extend the concessional duty on lithium-ion cells for batteries for another year is definitely welcoming as it would sustain the ongoing momentum within the Indian EV sector. Considering EV batteries account for approx upto 60 per cent of the EV cost, this relaxation will make electric vehicles more affordable and hence enhance the EV adoption rate."

The battery-swapping industry had anticipated for certain provisions, such as a reduction in the GST on swap batteries and incentives for swapping infrastructure to achieve parity with their fixed battery counterparts, but Budget 2023 fell short of their expectations.