Union Budget 2026 extends customs duty concessions on EV battery manufacturing capital goods by 1+ year. Impact on PLI-ACC, GST, and Section 80EEB explained.
India's electric vehicle (EV) story has moved from policy aspiration to production reality. The Union Budget 2026 has continued the tradition begun in Budget 2023 of extending customs duty concessions on capital goods and machinery used in the manufacture of lithium-ion cells. The latest extension — popularly called the '1+ year enhancement' on EV battery manufacturing benefits — is intended to keep India competitive against China and ASEAN supplier hubs while the PLI-ACC (Production-Linked Incentive for Advanced Chemistry Cells) scheme gathers scale.
What the enhancement actually covers
The Finance Act 2026 has extended the concessional Basic Customs Duty (BCD) on specified capital goods used in the manufacturing of lithium-ion cells for EV batteries. Earlier sunsetting on 31 March, the benefit now runs for an additional year, aligned with the timelines under the FAME-III scheme and the second tranche of PLI-ACC awards. The intent is to give domestic gigafactory developers a longer window to import machinery without paying full duty, lowering the landed cost of plants.
Why this matters for the EV ecosystem
- Lithium-ion cell pricing is the single largest determinant of EV total cost of ownership.
- Domestic cell manufacturing reduces foreign exchange outflow and supply chain dependency.
- PLI-ACC awardees can amortise plant capex over a longer concessional window, improving project IRR.
- OEMs gain confidence to lock long-term offtake agreements with Indian cell makers.
- Indian-made cells qualify for additional FAME-III incentives, tightening the value chain.
GST and indirect tax angle
Separately, GST on lithium-ion batteries used in EVs continues at 5 per cent under Schedule I of the rate notifications, the same rate as the EVs themselves. This rate parity prevents inverted duty structure refunds from piling up and aligns input and output GST. Battery swapping services and battery-as-a-service (BaaS) models attract GST at the rate notified by CBIC; check the latest schedule before pricing your service.
Income-tax implications for EV manufacturers
EV cell manufacturers set up under the PLI-ACC scheme are typically structured as new manufacturing companies and may evaluate eligibility for the concessional corporate tax rate under Section 115BAB, where applicable to companies that commenced manufacturing within the prescribed sunset window. Additional deductions for R&D spend and Section 35AD may apply. Consult a tax advisor before finalising the SPV structure.
Consumer-side incentives
For the EV buyer, the customs duty concession on cells indirectly translates into lower sticker prices over time. Direct fiscal incentives like Section 80EEB — interest deduction on loans for electric vehicles — continue to operate within the old tax regime for loans sanctioned in the prescribed window. Under the new tax regime, which is default for FY 2026-27, 80EEB is not available, so EV buyers should evaluate the regime trade-off.
Conclusion
The 1+ year extension is a quiet but consequential signal: India is committed to onshoring EV battery manufacturing for the long haul. Manufacturers should pull forward capex decisions to capture the BCD window, while buyers should run their loan-versus-cash analysis against the old vs new tax regime before finalising an EV purchase.
