Electric vehicles (EVs) in India are gaining traction, thanks to a significantly reduced Goods and Services Tax (GST) rate of 5%—one of the lowest across the automotive sector. This stands in stark contrast to the 28% GST levied on traditional internal combustion engine (ICE) vehicles.
The policy, aimed at fostering sustainable mobility, extends to electric cars, two-wheelers, three-wheelers, and buses, making them increasingly affordable for consumers and businesses alike.
Why It Matters
The 5% GST rate is designed to:
- Promote EV Adoption: By reducing costs, EVs become accessible to a broader range of consumers.
- Encourage Green Investments: Attracting manufacturers and investors to expand the EV sector.
- Support Net-Zero Goals: Aligning with India’s carbon reduction commitments.
GST Challenges and Industry Demands
While EVs enjoy a favorable tax rate, key components like lithium-ion batteries and charging services are taxed at 18%. Industry leaders, including Sulajja Firodia Motwani, Chair of the FICCI Electric Vehicle Committee, have urged the government to lower these rates to match the 5% GST on EVs.
“A unified GST rate of 5% across the EV ecosystem would significantly reduce ownership costs and drive adoption,” Motwani stated.
State Initiatives: Telangana Leads the Way
In a pioneering move, the Telangana government announced a 100% exemption from road tax and registration fees for EVs purchased until December 31, 2026. This initiative has led to a surge in EV registrations, with over 170,000 electric vehicles already on Telangana’s roads.
Transport Minister Ponnam Prabhakar emphasized that this policy aims to transform Hyderabad into a pollution-free city while boosting EV adoption across the state.
Looking Ahead: Key 2024 Updates
The GST Council is expected to consider:
- Reducing GST on Batteries: Aligning the rate with the 5% levied on EVs.
- Expanding Incentives: Introducing GST exemptions for EV leasing services and fleet electrification.
- PLI Scheme Updates: Enhanced subsidies to encourage local EV manufacturing.
Policy Challenges
Despite the favorable policies, disparities in GST rates on EV components and hybrid vehicles remain a concern. Hybrids are taxed at 28%, raising questions about the government’s stance on transitional technologies.
The upcoming Union Budget 2024-25 is expected to address these challenges. Recommendations for reduced GST rates, updated subsidies, and streamlined incentives are anticipated, signaling a robust commitment to making electric mobility mainstream in India.
As policymakers and industry leaders collaborate to enhance the EV ecosystem, the path toward a greener, more sustainable future appears promising.
