Uttar Pradesh to retain tax waiver for hybrids despite opposition from EV makers

Despite intense lobbying by electric vehicle (EV) makers, particularly by Tata Motors which is a dominant player in India's passenger EV market as well as Hyundai Motor India and Mahindra & Mahindra, the state has decided to continue to extend road tax waivers and cash incentives on strong hybrid vehicles, two people with direct knowledge of the matter told Mint on condition of anonymity.

EV makers want the state government to prioritize and extend such sops exclusively to electric vehicles.

The decision came after a high-stakes meeting with the officials of major automakers, including Maruti Suzuki, Tata Motors, Toyota Kirloskar Motor, Honda Cars India, Hyundai Motor India, Mahindra & Mahindra, and Bajaj Auto with the Uttar Pradesh chief secretary in Lucknow on Sunday.

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According to the people cited earlier, chief secretary Manoj Kumar Singh emphasized the state and India's unique developmental stage and the need for a multi-pronged approach to reduce carbon emissions. The secretary reasoned that every country follows its own path and “we cannot simply copy-paste solutions. India is at a different stage, and we need to explore all avenues".

“Many OEMs (original equipment manufacturers) emphasized that EVs need to be treated differently. While the Uttar Pradesh government appreciates the fact that ZEVs (zero-emissions vehicles) and low-emissions technologies need to be differentiated, they are of the view that both technologies are needed to reach the ultimate goal of carbon reduction", one of the persons cited earlier told Mint.

The government's rationale is clear: While EVs represent a promising future, they currently account for a mere 1.5% of the country's passenger vehicle market, the same as hybrids, emphasizing that both technologies need to be encouraged to minimize the remainder 97% of the polluting internal combustion engine vehicles on the roads.

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While the government's view is clear, it could consider offering a lower quantum of incentives on hybrids, the person said.

The chief secretary said at the meeting that in order to attract green investments in the state, the Uttar Pradesh government offers land at concessional rates, capital subsidies, and tax breaks, leading to projects that are expected to create thousands of jobs in the state, Mint has learnt. Ashok Leyland, for instance, has announcned plans to invest ₹500 crore to set up a modern electric vehicle factory to manufacture electric trucks and buses in Lucknow by September 2025.

Decision sparks controversy

The government's decision to extend incentives to hybrids has, however, sparked a controversy. EV manufacturers such as Tata Motors and Mahindra & Mahindra, have raised concerns about the potential impact on their investments and the overall push towards electrification. They argue that prioritizing hybrids could slow down the adoption of EVs, a technology deemed crucial for achieving long-term sustainability goals.

Also Read: This car aficionado revived the hybrid-EV debate; focus now turns to UP’s policy

Uttar Pradesh's EV policy defines EVs as automobiles using an electric motor driven by batteries, ultra-capacitors or fuel cells. The vehicles include all electric two-wheelers, three-wheelers and four-wheelers, plug-in hybrid EVs, battery EVs, and fuel cell EVs.

On 3 July, the Allahabad High Court asked the state government to refund the road tax to Piyush Bhutani, a petitoner who had sought a road tax waiver on the Toyota Innova Hycross and Grand Vitara hybrid cars he bought in 2023.

Following the judgement, the state government on 5 July issued a directive to all regional transport offices (RTOs) in the state, asking them to waive road tax on hybrid cars.

The road tax benefit is significant and depends on the price of the vehicle. Road tax in Uttar Pradesh could be 8% for EVs priced above ₹10 lakh and 9% for those priced above ₹20 lakh. Tata Motors had been lobbying for price caps and FAME-II eligibility criteria to be imposed on vehicles that can receive such benefits.

Currently, the Indian market has five strong hybrid products - from Maruti Suzuki, Toyota Kirloskar Motor and Honda Cars India. Hybrid vehicles accounted for nearly 1.4% of all the passenger vehicles registered in Uttar Pradesh from January to June this year.