Income Tax Taxation

Corporate Tax Rate Cut to Increase the Manufacturing of Electronic Vehicles Parts

India’s Electric Vehicles Industry is likely to receive a lot of support with the slashing of the Corporate Tax Rate on new manufacturing companies.  The vision of the Ministry is to promote manufacturing of Electric Vehicle parts within India and stop importing them from abroad. This is because the value of Indian Rupees had drastically fallen down in recent years and imports have become expensive.

Henceforth, with the change in rate slab in the corporate taxes, by the government it is planning to help manufacturing companies manufacture electronic parts such as Lithium-ion Batteries, charging equipment and electrical & electronic parts in India itself.

Overview of the Amendments

As most of the Makers of Electric Vehicles and their parts/components are planning to invest and manufacture in India itself, they would be encouraged to accelerate their plans after the Announcements made by the Finance Minister Nirmala Sitharaman.^[1] The aim behind taking these steps is to propel domestic production, specifically in producing Lithium-ion Batteries, charging equipment and electrical & electronic parts.

Additionally, with the falling value of rupee, imports have become very expensive, and because of that, the manufacturing companies are looking forward to localization of the components within India under the newly announced tax regime for new units.

As per the announcement by the Finance Minister, Nirmala Sitharaman the new manufacturing companies incorporated on or after 1^st October 2019 will have to pay Income Tax at the rate of 15% which was 25% before.

Other amendments are as follows;

• The corporate tax had been reduced to 22% from the prevailing rate of 30%
• The effective rate for domestic companies and new manufacturing companies would be 25.17% including all the surcharges and cess
• Furthermore, Minimum Alternative Tax {MAT} will not be applicable to such companies

The Finance Minister quoted “Tax concessions will bring investments in Make in India, boost employment and economic activity, leading to more revenue.”

What is Corporate Tax?

Corporate tax or corporate income tax is levied by the federal and state governments on the profits made by the corporate or businesses. In other words, corporate tax is a tax imposed on the net income of a company.

The definition of corporate tax according to Wikipedia is “A corporate tax, also known as corporation tax or company tax is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities.”  Many countries impose these taxes at the national level and similar taxes are imposed at state or local levels.

In India, both private and public companies are required to register under the Companies Act, 2013 and are liable to pay corporate tax. The current corporate tax rate has been reduced to 22% which was 30% earlier.

What Are The Benefits Of The Rate Cuts In The Corporate Tax?

The following are the benefits that are projected/ envisioned by the government through reducing Corporate Taxes;

• Reduction in taxes will increase the rush of the new manufacturing companies linked to the EV Sector. Also, it will help increase EV sales by making them more affordable by manufacturing them locally. The main motive behind this is to cut crude oil imports and well as high levels of pollution in most major cities.
• Earlier, the Union Government had allotted Rs. 10,000 crore to accelerate the adoption of EVs in India under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India {FAME-2} scheme.  But, sill most of the parts of vehicles were imported from abroad, the government is planning to totally stop this culture by reducing the corporate taxes.
• Additionally, this decision could help attract investment in vehicle parts manufacturing sectors

• However, certain parts like airbags, sensors, inflators, etc. will continue to be imported
• Basically, the government is aiming to help lower the production cost of lithium-ion batteries in India
• Manufacturers of components such as solar electric charging equipment, lithium storage batteries, and other components will be offered investment-linked income tax exemptions under Section 35 AD of the Income Tax Act and other indirect tax benefits.
• As per the speculations of Chirag Jain, an analyst at SBICAP Securities, these initiatives by the government will boost earnings by 3-8% as most auto companies pay taxes in the range of 28%-34% currently.

Conclusion

The Indian Government envisions increasing electronic vehicle parts production within India instead of importing them. This would help reducing the electronic vehicle final cost, and increase the trend of these vehicles in India. Also, this would help beat the environment pollution because of the use of crude oil use.  Henceforth, the government has reduced the Corporate Tax for achieving these goals and to encourage the EV Sector.