Budget 2023: Fully Imported Cars, Including EVs, to Cost More After 10 Percent Customs Duty Hike

Fully imported cars, including electric vehicles will cost more with Finance Minister Nirmala Sitharaman announcing hike in customs duty in the Union Budget 2023-24.

Customs duty on vehicles in completely built units (CBUs) costing less than $40,000 (roughly Rs. 32.7 lakh) or with engine capacity less than 3,000 cc for petrol-run vehicles and less than 2,500 cc for diesel-run vehicles has been raised from 60 percent to 70 percent, as per the Budget document.

Similarly, customs duty on electrically operated vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than $40,000, has also been raised to 70 percent from 60 percent.

The Budget also outlined that customs duty on vehicles, including electric vehicles, in semi-Knocked down (SKD) form will rise to 35 percent from 30 percent earlier.

Already, cars imported as CBUs with CIF more than $40,000 or with engine capacity more than 3,000 cc for petrol-run vehicles and more than 2,500 cc for diesel-run vehicles attract 100 percent customs duty.

"The Government has proposed to increase the duties on completely built units (CBUs) to 70 percent from 60 percent earlier.

"This is unlikely to have a material impact as most of the luxury cars are now assembled in India, barring the top-end variants. Nonetheless, an increase in customs duty will further aim to promote domestic manufacturing going ahead," Icra Senior Vice President & Group Head Corporate Ratings Shamsher Dewan said.

On the other hand, Sitharaman proposed "to further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles.

The Finance Minister also noted that replacing old polluting vehicles is an important part of "greening the country's economy".

"In furtherance of the vehicle scrapping policy mentioned in Budget 2021-22, I have allocated adequate funds to scrap old vehicles of the Central Government," she said.

States will also be supported in replacing old vehicles and ambulances, Sitharaman added.

"Multiple proposals in the Union Budget are seen favourable for the automotive sector. A sharp 33 percent increase in capital investment outlay, identification of critical transport projects for first and last-mile connectivity, and relaxation in personal tax rates shall aid the demand for the auto sector," Dewan stated.

Thrust on green energy continues with specific budgetary allocation for old vehicle scrappage, energy transition, and viability gap funding for battery storage solutions with 4000 MWh, he added.

Customs duty exemption on the import of capital assets for manufacturing lithium-ion cells for batteries used in electric vehicles shall facilitate EV ecosystem development and aid faster penetration, Dewan said.

"An increase in the duty rates on compounded rubber from 10 per cent to Rs 25 (or) 30 per kg, whichever is less, is a challenge for tyre industry, which significantly depends on imported rubber," he added