Centre keen on Tesla to set up manufacturing in India, considering low import duty and incentives

In an effort to entice Tesla to set up manufacturing in India, the government may lower import duty and offer other incentives. This comes after Elon Musk said India’s high import duties on electric vehicles (EVs) are a deterrent.

“We want to do so, but import duties are the highest in the world by far of any large country,” Musk said in a reply to a tweet about launching the company’s cars in India. “But we are hopeful that there will be at least a temporary tariff relief for electric vehicles.”

India has two slabs of import duty on fully imported cars – 100% for the cars with cost, insurance and freight (CIF) value of more than USD 40,000, while 60% on those costing less than USD 40,000.

Sources told Reuters that Tesla in a letter to ministries and the NITI Aayog said that slashing federal taxes on imports of fully assembled electric cars to 40% would be more appropriate. “The argument is that a 40% import duty, electric cars can become more affordable but the threshold is still high enough to compel companies to manufacture locally if demand picks up.”

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The Indian government is trying to boost the EV ecosystem, and as such has offered multiple incentives for production in the country. An official told ET that the government is open to consider it, especially if they will set up a manufacturing place here. For instance, goods and services tax (GST) on EVs has been reduced to 5% from 12%, while tax on chargers and charging stations has been reduced to 5% from 18%. Moreover, consumers will also get incentives for the purchase of EVs through a reduction in price, as well as reduction in income tax of Rs 1.5 lakh on interest paid.

However, it has to be noted that India has been following its own set of rules which is described as pro-domestic manufacturers. Pressure from domestic manufacturers is one of the reasons Tesla’s EVs are not likely to receive any exemptions. In an effort to push local manufacturing, he government has also announced $4.6 billion incentive for companies to boost the production of electric vehicles in India.