The Ministry of Finance has introduced amendments to the Income-tax Rules, 1962, under the Central Board of Direct Taxes (CBDT), bringing significant changes to support India’s electric vehicle (EV) industry. The new amendments, effective from their publication date, aim to enhance tax certainty and boost local manufacturing in the EV sector, particularly in lithium-ion battery production.
One of the key updates includes the expansion of safe harbour rules under Section 92CB of the Income-tax Act, 1961. Safe harbour rules determine the arm’s length price for international transactions and provide tax certainty to businesses. The amendments have extended the applicability of these rules for two more assessment years, covering 2025-26 and 2026-27. Additionally, the threshold for availing safe harbour benefits has been increased from ₹200 crore to ₹300 crore, offering greater flexibility for businesses operating in India.
Another major change is the inclusion of lithium-ion batteries for use in electric or hybrid vehicles under the definition of core auto components. This move is expected to encourage global battery manufacturers to establish production facilities in India, reducing reliance on imports. Companies such as CATL, LG Energy Solution, and Panasonic may find this development attractive for investment, while domestic firms like Tata Chemicals and Exide Industries could see increased growth opportunities and potential collaborations.
The policy changes are also expected to benefit EV manufacturers, as local battery production could lead to cost reductions. Companies like Ola Electric, Ather Energy, Tata Motors Electric Mobility, and Mahindra Electric may experience lower production expenses, making EVs more affordable for consumers. By incentivizing local battery manufacturing, the government aims to strengthen India’s position as a global EV hub.
Beyond EVs, the amendments could positively impact the broader energy sector, particularly energy storage solutions essential for integrating renewable energy. The entire supply chain, including raw material suppliers, battery testing companies, and component manufacturers, is likely to benefit from the increased focus on domestic production.
The government has also introduced more clarity on the rollback of Advance Pricing Agreements (APAs), specifying that they will now apply for only one assessment year. This provides multinational companies with better transparency and predictability regarding their tax obligations in India.
These amendments mark another crucial step in India’s efforts to accelerate EV adoption and strengthen its domestic manufacturing ecosystem. As policies continue to evolve in favor of clean energy, more investments and developments in the sector are expected, positioning India as a major player in the global EV market.
