Budget 2026 may revamp EV incentives, boost R&D and clean mobility: Deloitte India

The Union Budget might not only extend the existing fiscal and policy incentives for the country's electric vehicle (EV) adoption but also refine them. According to a conversation with ANI, Sheena Sareen, Partner at Deloitte India, mentioned that the government might announce the measures to support domestic manufacturing, provide clean mobility and investment across the EV value chain to India's journey to sustainable transport.

PLI tweaks and R&D tax support

Sareen stated that if the PLI scheme for EVs and advanced automotive components is adjusted and complemented with tax benefits directed at research and development, as well as the manufacturing of capital goods, it would undoubtedly enhance the scale and competitiveness of the entire industry.

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Like always, the Union Budget for 2026-27 will be presented in the Parliament on February 1, 2026.

Deloitte India's report indicated that the mentioned interventions would not only lessen the dependence on technological imports but also promote local production and eventually reduce crude oil imports, thus saving foreign exchange.

Boost to large-scale EV manufacturing

Sareen also commented that the actions could assist in the large-scale production of EVs, the country's technological dependence would be lessened, and the crude oil import bill of India would be reduced, leading to conservation of 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.

Innovation tax breaks could serve to speed up the process of bringing battery localisation, power electronics, and other EV-critical components into the country.

Industry push for PLI relaxations

Sareen corroborated that the industry is pushing for relaxation of domestic value addition norms and reduction of investment thresholds under the PLI policy, which will allow more manufacturers, including EV startups and component suppliers, to qualify for incentives.

She also pointed out the expectations around the proposed capital goods incentive scheme, under which the automotive and EV sectors would have their 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.

The aim of this segment would be to support the entire EV value chain and to cut back on import reliance in the long run.

Limited scope for GST rate cuts

Speaking about indirect taxes, Sareen mentioned that there is very little room for further GST rate rationalisation on vehicles, since the recent reforms have already eliminated rate disparities among the segments.

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

Nevertheless, the industry persists in bringing up the issue of the inverted duty structure, which is a contributor to the overall costs of vehicles and EVs.

Sareen suggested that extending inverted duty refunds to capital goods and input services or supporting refunds based on exports could make cost competitiveness remarkably better.

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

Sareen highlighted the requirement of the easing of customs procedures, especially the ones linked to the Special Valuation Branch (SVB) for related party imports.

Easing SVB restrictions and eliminating the provisional duty would not only help the supply chain but also provide more certainty regarding the import costs for EV manufacturers.

Clean mobility and sustainability push

On the sustainability front, she mentioned that India is switching to cleaner mobility, which is being driven by Corporate Average Fuel Efficiency (CAFE) norms rather than the immediate imposition of carbon taxes or green levies.

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

She further elaborated that a well-designed combination of EV-centric incentives, tax cuts, and regulatory clarity in the upcoming Budget would not only bolster India's clean energy targets but also gradually reduce the country's reliance on fossil fuels and strengthen its external balance.