GST Council trims rate on EVs to 5% in bid to boost electric mobility

Topics GST | GST Council

Finance Minister Nirmala Sitharaman at the Goods and Services Tax Council meeting, in New Delhi on Saturday. Photo: PTI
The Goods and Services Tax (GST) Council on Saturday decided to slash tax rates on electric vehicles (EVs) and chargers in a bid to encourage the adoption of eco-friendly mobility solutions.

The GST rate on EVs was cut from 12 per cent to 5 per cent, whereas for EV chargers, it was reduced from 18 per cent to 5 per cent. The Council also exempted the hiring of electric buses by local authorities from the GST, according to an official statement. The new rates will be effective from August 1. 

The 36th meeting of the GST Council on Saturday, held via video-conferencing, was the second one for Finance Minister Nirmala Sitharaman as its chairperson.

The rate reduction will not have any significant impact on the government’s revenue, as the sector is yet to take off. “Only about 8,000 EVs were sold last year, as against close to 4 million non-EV passenger and commercial vehicles. Therefore, there may not be any impact on the revenue, at least in the immediate future,” said a government official.

The Narendra Modi government has committed to gradually doing away with fossil fuels and moving towards renewable energy. For that, it has been doling out incentives for clean energy, particularly EVs.  

In her maiden Budget on July 5, Sitharaman had announced an income-tax deduction of up to Rs 1.5 lakh on the interest paid on loans taken to purchase EVs, besides exemption from Customs duties on lithium-ion cells to help bring down the cost of such batteries, which are currently not manufactured in India. She had also promised investment-linked I-T exemptions for makers of components, such as solar electric charging infrastructure and lithium storage batteries under a yet-to-be-launched scheme. The industry lauded the GST Council’s move to cut taxes on EVs. “The GST rate cut will reduce the gap between EVs and IC (internal combustion) engine vehicles. If FAME 2 was a dampener, the GST reduction is certainly a bright spot in the National EV policy. The EV industry now awaits the corresponding reduction of the 18 per cent GST on spares batteries, as it will help maintain the low running cost of EVs over their lifetime,” said Sohinder Gill, director general, the Society of Manufacturers of Electric Vehicles.

Hyundai recently launched its full electric SUV Kona priced at Rs 25.3 lakh.

Expressing similar sentiment, Mahindra & Mahindra MD Pawan Goenka tweeted, “One more bold enabling step by GoI to support EV movement. With the GST rates coming down, the financial viability for 3W and even 4W for shared mobility becomes positive. Now let us just do it."

Audi India Head Rahil Ansari said the move would definitely give a boost to EVs and "we are confident that it will motivate customers looking for both entry-level EVs as well as luxury EVs that will enter the market. We are pleased that this coincides with our plans for introducing the Audi e-tron in India by the end of this year.”

He added, "While these are great steps for the future, short-term measures supporting the overall industry, also the luxury segment, are required by the government. All players are struggling with declining sales, which in turn is leading to production cuts and may lead to job losses, too." 

M S Mani, partner, Deloitte India, said it was needed to be ensured that the rate reductions did not lead to input tax credit accumulation in the hands of EV manufacturers. “There is also a need to clarify whether charging stations would be deemed to be supplying electricity (which is outside the purview of the GST at present) or providing a service taxable at 18 per cent. Hopefully, all the tax-related issues will be comprehensively clarified in future,” he added.

Abhishek Jain, tax partner, EY India, said, “The reduced rate should help foster demand for this environment-friendly variant, through a tax aribtrage between conventional vehicles and EVs."

With inputs from PTI

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