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GST on Electric Vehicles reduced to 5 percent from 12 percent

July 31, 2019

The GST Council in its 36th meeting on July, 27 2019 has reduced the GST on electric vehicles (EVs) to 5 per cent from 12 per cent and on EV chargers to 5 percent from 18 percent. The new rates will be effective from August 1, 2019. This move is aimed at accelerating the adoption of eco-friendly mobility solutions.

The Society of Manufacturers of Electric Vehicles (SMEV) has welcomed the move of reduction of tax rates on EVs.

The reduced tax has been introduced at a time when the Government is in the process of making EVs affordable. The sale of EVs is proposed to be increased with the Government proposing to hike the registration charges for petrol/diesel vehicles. The reduction in tax rates bears testimony to the fact that the Government is keen to extend support to electric mobility and reduce the present dependence on fuel for transportation. The Council has also approved an exemption from GST towards hiring of electric buses (with a carrying capacity of more than 12 passengers).

The reduction of tax rates has been a much needed step for encouraging consumers to opt for EVs. The manufacturers of EVs have been requesting for a reduction of the rate of GST on EVs as higher procuring cost and insufficient infrastructure have been major hurdles which dissuaded consumers from exploring the options of purchasing and owning EVs.

Presently most of the consumers opt for diesel/petrol vehicles than EVs. The government wishes to accelerate the production of EVs and its adoption by consumers through incentives. With the sole objective of making EVs more affordable for consumers, the Union Budget for FY 2019-20 proposed a tax incentive for prospective EV owners. The Finance Minister while presenting the Union Budget proposed an additional income tax deduction of Rs 1.5 lakhs towards the interest paid on loans taken for purchase of EVs.

The tax reduction on EVs should help in reducing the cost and substantially increasing the demand for EVs which will assist in curbing the pollution levels which are being faced across the country, one of the major causes of it being the diesel/petrol vehicles plying on the roads.

The industry now awaits a corresponding rate reduction in the batteries used in EVs which are presently subject to 18 percent. A reduction in the tax rate on the batteries will be highly conducive in maintaining the low running cost of EVs.

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