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* Proposes cut in tax rate on electric vehicles to 5%
* Allows income tax deduction of 150,000 rupees on loans
* To make India global manufacturing hub for EVs
* To retire inefficient power plants, build gas grid
MUMBAI/NEW DELHI, July 5 (Reuters) - India proposed tax waivers on Friday on the purchase of electric vehicles and removed import taxes on some auto components to help boost sales and reduce its dependence on fossil fuels.
India, the world's third-biggest emitter of greenhouse gases, is home to 14 of the world's most polluted cities, including the capital New Delhi, with its toxic air claiming more than one million lives in 2017.
Finance Minister Nirmala Sitharaman, presenting the federal budget to parliament, said buyers of electric vehicles will receive an income tax deduction of 150,000 rupees ($2,189.30) on interest paid on loans taken out to them.
She added that the government will also withdraw import tariffs on some parts used to make electric vehicles.
"Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of electric vehicles," she said in the budget speech.
While India wants electric vehicles to account for 30% of all passenger vehicle sales in India by 2030, electric cars account for less than 1% of new vehicle sales due to a lack of charging infrastructure and the high cost of batteries.
Sitharaman said the government has already proposed reducing a national goods and services tax (GST) from 12% to 5% to encourage sales. The plan is to have "mega-manufacturing plants" to make lithium storage batteries and solar electric charging infrastructure.
"The government clearly wants to create an entire ecosystem for e-mobility in the country," said Puneet Gupta, associate director at IHS Markit.
As part of its program to cut pollution in its bustling cities, the Finance Minister also announced that it would shut down old and inefficient power plants and look for ways to increase the use of natural gas-based power.
($1 = 68.5150 Indian rupees) (Reporting by Promit Mukherjee in Mumbai and Sudarshan Varadhan in New Delhi; Additional reporting by Nivedita Bhattacharjee in Bengaluru; Editing by Sanjeev Miglani and Louise Heavens)