Budget 2026 May Revamp EV Incentives, Boost R&D and Local Manufacturing

Sareen noted that recalibrating the Production-Linked Incentive (PLI) scheme for EVs and advanced automotive components, along with targeted tax incentives for research and development and capital goods manufacturing, could significantly improve scale and competitiveness.

As has been the convention, the Union Budget for 2026-27 will be presented in the Parliament on February 1, 2026.

Deloitte India's analysis suggested that such interventions would help reduce reliance on imported technologies, support indigenisation, and contribute to lowering crude oil imports, thereby conserving foreign exchange.

Sareen added that such measures could play a critical role in scaling up EV production, reducing dependence on imported technologies, and lowering India's crude oil import bill, thereby saving foreign exchange.

"This will help companies that have so far been unable to avail incentives due to stringent eligibility conditions," Sareen told ANI in an interview, adding that R&D remains central to the EV ecosystem.

Tax breaks for innovation could accelerate localisation of batteries, power electronics, and other EV-critical components.

According to Sareen, the industry is seeking relaxation in domestic value addition norms and lower investment thresholds under the PLI framework, which would enable a wider set of manufacturers, including EV startups and component suppliers, to qualify for incentives.

She also highlighted expectations around a proposed capital goods incentive scheme, under which the automotive and EV sectors would have defined thresholds.

"This would encourage domestic manufacturing of capital goods required for the EV and automotive sectors, which currently remain heavily dependent on imports," she said.

Strengthening this segment would support the entire EV value chain and reduce import dependency over the long term.

On indirect taxes, Sareen said there is limited scope for further GST rate rationalisation on vehicles, as recent reforms have already addressed rate disparities across segments.

"The GST 2.0 exercise lowered rates for smaller vehicles to around 18% and pegged mid and higher segments at close to 40%. Expecting further broad-based cuts may be a stretch," she said.

However, the industry continues to flag concerns around the inverted duty structure, which adds to overall vehicle and EV costs.

Sareen said extending inverted duty refunds to capital goods and input services, or allowing refunds linked to exports, could significantly improve cost competitiveness.

"These costs ultimately get embedded in vehicle pricing. Any relief here would directly improve EV affordability and adoption," she said.

Sareen also pointed to the need for easing customs procedures, particularly those related to the Special Valuation Branch (SVB) for imports from related parties.

Simplifying SVB norms and removing provisional duty requirements could improve supply chain efficiency and provide greater certainty on import costs for EV manufacturers.

On sustainability, she said India's shift toward cleaner mobility is currently being driven by Corporate Average Fuel Efficiency (CAFE) norms, rather than immediate carbon taxes or green levies.

"As these measures evolve, they are likely to further incentivise electrification, hybridisation and other low-emission technologies," Sareen said, noting that the industry has already made significant investments in EV platforms and energy-efficient technologies.

She added that a well-calibrated mix of EV-focused incentives, tax relief, and regulatory clarity in the upcoming Budget would not only support India's clean energy goals but also reduce fossil fuel dependence and strengthen the country's external balances over time.

- ANI