How 5% GST on EVs is Making Green Dreams Affordable for All

 Electric Vehicles (EVs) in India enjoy one of the most favorable GST rates across the automotive sector. To promote clean mobility, the Government of India has set the GST on EVs at 5%, which is significantly lower compared to the 28% GST on traditional internal combustion engine (ICE) vehicles.

This tax benefit extends not only to electric cars but also to electric two-wheelers, three-wheelers, and buses, making EVs a more affordable and viable option for consumers and businesses.

• Why This Matters

The low GST rate aims to:

1. Boost EV Adoption: Making EVs more accessible to Indian consumers.
2. Encourage Green Investments: Attract manufacturers and investors to the EV sector.
3. Achieve Net-Zero Goals: Align with India’s commitment to reduce its carbon footprint and enhance energy security by transitioning to sustainable mobility.

• Current GST Rates and Industry Demands

 Currently, electric vehicles attract a GST rate of 5%, while lithium-ion batteries and EV charging services are subjected to a significantly higher rate of 18%. This disparity has prompted industry leaders and manufacturers to call for a reduction in the GST on batteries and charging infrastructure to 5%. The rationale behind this request is to lower the overall cost of EV ownership, making them more accessible to consumers.

Sulajja Firodia Motwani ,Chair of the FICCI Electric Vehicle Committee, emphasized that reducing these tax rates would not only make EVs more competitive but also incentivize greater adoption among consumers. A formal recommendation to the GST Council is expected soon to address these concerns.

• Government Support for EV Adoption

The Indian government is keen on increasing EV sales penetration to 30% by 2030. Tarun Kapoor, an adviser at the Prime Minister’s Office, highlighted the importance of revisiting GST rates on batteries and charging stations as part of this initiative. The government aims to foster an environment that supports innovation and research in battery technology and charging infrastructure.

Telangana's 100% Tax Exemption Initiative

In a significant move to promote EV adoption, the Telangana government has announced a 100% exemption from road tax and registration fees for all electric vehicles purchased and registered in the state until December 31, 2026. This policy removes previous caps on vehicle registrations, allowing for unlimited registrations during this period. Currently, about 5% of all registered vehicles in Telangana are electric, with over 170,000 EVs already on the roads.

Transport Minister Ponnam Prabhakar stated that this initiative aims to transform Hyderabad into a pollution-free city while encouraging citizens to adopt electric vehicles for a cleaner environment.

• What About EV Components?

The GST rate on EV chargers and charging stations is set at 5%, aligning with the rate on EVs themselves. However, GST on spare parts like batteries (used in both EVs and renewable energy setups) is higher at 18%, which has drawn some criticism from stakeholders.

• Key Updates in 2024

1. GST Revisions Under Review: Industry bodies have proposed reducing GST on lithium-ion batteries and EV spare parts to align with the 5% GST on EVs. This move is expected to reduce the total cost of EV ownership further.
2. Green Taxation Trends: There is ongoing discussion about providing GST exemptions for EV leasing services to stimulate fleet electrification.
3. State-Specific Incentives: Many states, such as Maharashtra and Tamil Nadu, are complementing GST benefits with additional subsidies, tax breaks, and fee waivers.

• Policy Challenges

1. Lack of Clarity for Hybrids: Hybrid vehicles still face the higher GST slab of 28%, which some argue disincentivizes transitional green technologies.
2. GST on Input Materials: The disparity between GST rates for EVs and their components often increases costs for manufacturers.

• What’s Next for EV GST in India?

The government is working closely with industry experts to revise GST structures and ensure long-term sustainability in the EV ecosystem. Watch out for potential announcements in the upcoming Union Budget 2024-25, which may include:

• GST rate reductions for EV components.
• New subsidies for local EV manufacturing under the PLI (Production Linked Incentive) scheme.
• Updated tax benefits for EV buyers and businesses.

As discussions continue around rationalizing GST rates and enhancing incentives for electric vehicles, it is clear that both industry stakeholders and government bodies are committed to making EVs a mainstream choice in India. The upcoming recommendations to the GST Council will be pivotal in shaping the future landscape of electric mobility in the country.

Stay informed about these developments as they unfold! Share your thoughts on how changes in GST could impact your decision to switch to an electric vehicle. Let’s drive towards a sustainable future together!

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