Home / Politics / Policy /  To boost EV demand, NITI suggests tweaks in tax policy for cab operators

Policy think tank NITI Aayog has recommended accelerated depreciation benefit for cab operators switching one-fifth of their fleet to electric vehicles (EVs). This could put more EVs on the road and increase investment in the sector.

In a 16 January letter to revenue secretary Ajay Bhushan Pandey, NITI Aayog chief executive officer Amitabh Kant said such benefits can be passed on to cab aggregators and delivery network of e-commerce firms, if 20% of their fleet is converted to electric. Mint has reviewed a copy of the letter.

Accelerated depreciation is a method, wherein the deductions in the initial years of operation are higher and help boost profits of companies.

If the government clears the proposal, cab aggregators such as ANI Technologies Pvt. Ltd-owned Ola and Uber Technologies Inc., beside companies operating commercial fleets will be eligible for the benefit for the next four fiscal years.

The NITI Aayog recommendation will help commercial vehicle operators to ply more EVs for greater tax benefits. It will help push faster adoption of EVs and generate sustainable demand, besides encouraging manufacturing.

Accelerated depreciation benefit is effective because it offers a good level of financial support at a low level of risk for investors and operators. This structure is appropriate for the early stage of electric mobility promotion since the technology is yet to develop fully, and offers more certainty, Kant noted in the letter.

In March, the centre approved an outlay of 10,000 crore for promoting an EV ecosystem through the second phase of the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles scheme. The incentives are only for commercial fleet operators.

“Accelerated depreciation at 80% may be provided in respect of EVs purchased in the next four financial years beginning 1 April, and used for purposes of business provided that at least 20% of the vehicles of the eligible assesses are EVs," Kant wrote in the letter.

Last month, Ola, India’s largest ride-hailing service provider, announced South Korean vehicle manufacturer Hyundai Motor Group as a strategic investor, with Hyundai Motor Co. and Kia Motor Co. supplying specially designed EVs for India and other markets. Hyundai has also invested $300 million in the Bengaluru-based startup.

Suvranil Majumdar, project lead (EVs) at International Finance Corporation, said this can be an efficient way to promote EVs. “This is better than offering incentives to original equipment manufacturers," added Majumdar.

The tax department’s stated approach is to phase out tax exemptions and lower the tax rate as it will reduce litigation and make the tax regime globally competitive. However, a decision on granting tax incentives to any specific sector for a period will be a political call by the government closer to the Union budget for FY20. Accelerated depreciation up to 80% was allowed under section 32 of the Income-tax Act till FY17. From 1 April 2017, it was capped at 40% as part of the phasing out of tax incentives.

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