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GST Council May Reduce Tax On Electric Vehicles And Their Components To Push Manufacturing And Sales

Replying to a question in Lok Sabha, Minister of State for Finance Anurag Thakur said that during its next meeting, Good and Service Tax Council may consider reducing tax on electric vehicles, which are considered as more environment-friendly than the fossil-fuel burning vehicles

GST Council May Reduce Tax On Electric Vehicles And Their Components To Push Manufacturing And Sales

New Delhi: The government of India has been pushing for faster adoption of zero-emission electric vehicles (EVs) since past few years. In the current year, it took some significant steps in this direction ranging from launching the second phase of EV incentive scheme FAME (Faster Adoption and Manufacturing of Electric Vehicles) with a total outlay of Rs. 10,000 crore, formulating a Phased Manufacturing Plan for increasing indigenous EV production, to deploying electric buses and installing electric vehicle charging stations in major cities to build the required eco-system. In a bid to further propel electric vehicle industry in the country, the Goods and Service (GST) Council is considering reducing tax on electric vehicles, Minister of State for Finance Anurag Thakur informed the Lok Sabha on Monday.

Also Read: India’s Push To Go Electric: How Is The Country Pushing For E-Mobility

Replying to a question asked in the Lok Sabha during the Question Hour, Mr. Thakur said,

The matter has been placed before the GST Council and will be considered. As of now, it is pending before the council.

According to the Ministry of Finance, the matter on GST on EVs and its components is currently pending with the Fitment Committee which comprises tax officials of the central and state governments, is tasked with determining rates for various supplies under GST. The decision may be taken in the next council meeting which is tentatively scheduled to take place right before the announcement of the union budget. The Ministry said in a statement,

On issues relating to GST concessions on electric vehicles, charger, and hiring of electric vehicles, the Council recommended that the issue be examined in detail by the Fitment Committee and brought before the Council in the next meeting.

Also Read: India’s Push To Go Electric: Meet Five Start-Ups Who Are Riding The Electric Vehicle Wave

Currently, the GST levied on finished EVs is 12 per cent, on lithium-ion batteries it is 18 per cent and on the other components like electric motor, power converter, controller, transmission, driving wheels and others is 28 per cent. Under the new GST regime, the tax on EVs are expected to reduce from 12 per cent to 5 per cent, while the rate of batteries is expected to come down from 18 per cent to 12 per cent.

Last year in July, the GST council slashed 10 per cent tax on batteries by reducing GST from 28 per cent to 18 per cent. However, the EV industry has been demanding a uniform GST rates for the finished vehicles and components. Society of Manufacturers of Electric Vehicles (SMEV), an association representing Indian manufacturers of EVs and EV components has urged the government to reduce GST rate to 5 per cent on EVs, and all components, to encourage bigger investments in the technology. Sohinder Gill, Director General, SMEV, said,

The difference in GST on EVs and batteries can have big implications on the promotion of EVs because while a lithium-ion battery fitted EV attracts 12 per cent GST, the battery bought separately attracts 18 per cent GST. The customer has to purchase the batteries once every four to seven years and higher GST therefore, adversely affects the total cost of ownership of EVs. For e-car owners, the extra cost of a spare battery would be around Rs. 15,000 while for e-scooter owners, it could mean additional spending of up to Rs. 5,000 on buying a new lithium-ion battery. Also, high GST for batteries can have negative impact on EVs running on battery swapping model in the public and commercial domain which means that an EV driver can exchange the battery that ran out of charge and get a fully charged one and the charging period. Therefore, a uniform rate would be ideal.

Also Read: India’s Push To Go Electric: Five Places Where Non-Polluting Electric Vehicles Have Been Deployed

According to Tarun Mehta, Chief Executing Officer and co-founder at Ather Energy, an electric scooter manufacturing firm, even with a rate cut on EVs to 5 per cent for the current 12 per cent, will suffer from the problem of inverted duty structure, which means the refund to the manufacturers in case of GST on raw materials being more than the duty on finished vehicles. He said that while a lower GST will definitely help in boosting the EV industry, there is a need to formulate a GST refund structure that can make refunds to manufacturer easily and quickly to ensure seamless cash flows for the manufacturers.

Apart from GST on the finished vehicles and components, the proposal to reduce tax on renting of EVs has also been sent to the fitment committee. This, as per the industry will help in boosting the use of EV in commercial space.

According to Anumita Roychowdhury, air pollution expert from the Centre for Science and Environment, lower duties are expected to encourage manufacturers to invest in India’s shift to EVs, and research and development in the e-mobility technology which will further increase the sale of EVs. She said,

Tax reduction will help to reduce cost curve which will push sale and thus help in reducing the vehicular pollution.

Recently, to provide a stimulus to the EV sector, NITI (National Institution for Transforming India) Aayog has also suggested a complete transition to EVs by 2030 and has placed a cabinet note seeking the government’s approval. The Think Tank has also proposed a switch to electrification for the two and three wheelers from 2025 and all commercial vehicles by 2025.

Also Read: India’s Push To Go Electric: Status Of Charging Infrastructure For Electric Vehicles In India

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