GST Council reduces tax rates on electric vehicles and chargers to 5% from 12%; EV makers welcome duty cut

  • The new Goods and Services Tax (GST) rate on EVs will be effective from 1 August

  • The tax rate on chargers or charging stations for EVs has been slashed from 18 percent to 5 percent.

  • In Budget 2019-20, the government provided additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase EVs

In a much-anticipated and welcome move, the 36th GST Council Meeting on Saturday decided to reduce the tax rate on electric vehicles (EVs) to 5 percent from the existing 12 percent. This move is aimed at accelerating the adoption of eco-friendly mobility solutions.

The new Goods and Services Tax (GST) rate on EVs will be effective from 1 August, the finance ministry said in a statement after the meeting of the GST Council.

The GST rate on all EVs has been reduced from 12 percent to 5 percent. Additionally, the tax rate on chargers or charging stations for EVs has been slashed from 18 percent to 5 percent.

The council also approved GST exemption for hiring of electric buses (of carrying capacity of more than 12 passengers) by local authorities from 1 August, the statement said.

The meeting, chaired by Finance Minister Nirmala Sitharaman, was held via video conferencing, a PTI report said.

The GST Council, headed by the Union Finance Minister, has state finance ministers as members.

India, the world’s third-biggest emitter of greenhouse gases and home to 14 of the world’s most polluted cities, is aiming for electric vehicles to account for 30 percent of all passenger vehicle sales in the country by 2030. They currently make up less than 1 percent, largely due to a lack of charging infrastructure and the high cost of batteries.

The government had earlier this month given tax breaks in the Union Budget for consumers buying electric vehicles. Saturday’s decision to slash the tax was taken at a meeting of the GST council chaired by India’s Finance Minister Nirmala Sithraman in New Delhi, Reuters reported.

Sitharaman said during the Budget announcement that the government’s plans was to make India a hub of electric vehicle manufacturing, with large manufacturing plants for lithium storage batteries and solar electric charging infrastructure.

The government also removed import taxes earlier this month on some auto components to help boost electric vehicle sales and reduce the country’s dependence on fossil fuels.

The GST Council Meeting held on Saturday also took certain decisions regarding changes in GST law.

The last date for filing of intimation, in Form GST CMP-02, for availing the option of payment of tax (by exclusive supplier of services) has been extended from July 31 to September 30, the statement added.

 GST Council reduces tax rates on electric vehicles and chargers to 5% from 12%; EV makers welcome duty cut

File photo of an Electric Vehicle at a charging station. Image: Reuters

Further, the last date for furnishing statement containing the details of the self-assessed tax in Form GST CMP-08 for the June quarter (by taxpayers under composition scheme) has been extended to 31 August. The earlier deadline was 31 July.

The central government has been taking initiative to popularise environment friendly electric vehicles.

In the Union Budget 2019-20, the government provided additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase EVs.

Besides, customs duty has been exempted on certain parts of EVs to further incentivise e-mobility in the country.

The Centre has also approved Rs 10,000 crore to encourage faster adoption of EVs in the country under the FAME II scheme, which aims to encourage faster adoption of such vehicles by right incentives and charging infrastructure.

The Society of Manufacturers of Electric Vehicles (SMEV) on Saturday welcomed the reduction of GST on electric vehicles to 5 percent, saying it is in line with the government's steps to promote eco-friendly mobility, even as it sought a similar cut in spare batteries.

SMEV Director General Sohinder Gill said with the reduction in GST, the gap between prices of EVs and internal combustion engine vehicles will also be reduced and will thus play a part in faster adoption of electric mobility, a PTI report said.

"The government is lately showing very clear intentions of promoting EVs and GST reduction is one such measure in line with the series of actions taken by the government in the last few months," Gill said in a statement.

"We welcome the 7 percent reduction in GST as it will reduce the gap between the EVs and the IC Engine vehicles," he added.

Gill said if FAME-II 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% GST in the spares batteries as it will help maintain the low running cost of EVs over their lifetime," he said.

Hailing the reduction of GST rates on Electric Vehicles by GST Council as a landmark move, Chandrajit Banerjee, Director General, CII, said it comes as a shot in the arm for the automobile industry. "This was much awaited and will boost the market of non-polluting vehicles, for which industry was pushing since long. Reduction of GST rates on E-Vehicles shall give fillip to the production of the Automobile sector and shall benefit the consumers significantly, added Banerjee.

It is also suggested that similarly, rates of other items falling under higher slabs may also be considered for tweaking shortly, since GST revenue has more or less stabilized.

Govt committed to reducing carbon footprint

Reacting to the government's decision, MS Mani, Partner, Deloitte India, said, The proposed reduction in the GST rates on e-vehicles coming on the back of the recent customs duty reduction on EVs and parts signifies the Governments resolve to go green and reduce the carbon footprint."

Mekhla Anand, Partner, Cyril Amarchand Mangaldas said, "The reduction of tax rates on electric vehicles and chargers is a welcome addition to the slew of incentives given to the EV industry in this year’s Budget. The government appears to be committed to its goals of clean India by promoting alternatives to fuel based automobiles as well as public transportation. It is hoped that the rate reduction would also provide the necessary motivation for increasing the manufacturing base in India."

Vishal Raheja, DGM, Taxmann, said,"This move can be seen as a major push towards the adoption of EVs by people. Besides reduction in GST rates, the government has also introduced a new Section 80EEB in Income-tax Act which allows deduction of Rs. 1.5 lakhs towards interest on loan taken to buy EVs. These two steps taken by the government will give initial thrust to the EVs in the Indian automobile market."

Ranjeet Mahtani, Partner, Dhruva Advisors LLP, said, "The Union Budget speech envisioned India as a global manufacturing hub for EVs. This aligns with the FAME II scheme for faster adoption of the cleaner mobility option for the Indian populace. In that direction, the GST Council has today recommended rate cut for EVs, from 12 percent to 5 percent. Supporting infrastructure— chargers, carving stations—will also see GST rate down to 5 percent (from 18 percent). This rate rationalisation could prove the turbo boost for the EV sector; while the traditional automobile sector looks for it's starter. The recommendation necessitates a scrutiny of the inverted duty position for EVs and, at a policy level it would be ideal the GST Council had also cut GST rate on key parts and components used for manufacture of EVs."

Waman Parkhi, Partner, Indirect Tax, KPMG in India said the reduction in GST rates for EVS and its infrastructure are in line with the government’s policy to incentivise EVs. "The government aims to have public transport and two wheelers converted to EVs by 2025 in order to achieve its objectives of cleaner and greener India. However, it should be noted that various State Governments have given tax incentives over last few years to automobile and component manufacturers bringing in huge investments in the conventional petrol and diesel run vehicles in India. Whether pushing for speedy EV revolution would adversely impact such investments needs to be studied by government.”

Manufacturers want govt to promote EVs through campaigns

After the reduced subsidies and duty changes in FAME 2, the price of affordable segment EVs had gone up by around 20 percent, said Sohinder Gill, CEO of Hero Electric India. A reduction in GST is a very positive and a welcome move, as it will reduce the prices by 7 percent, he said, adding this move also sends clear signals to the industry on government's seriousness in promoting EVs.

"However, even after the GST reduction, the prices of the affordable segment EVs will still be much higher than IC engine vehicles and will remain the biggest stumbling block for purchase. The industry and the government must work together to create price parity at-least for two to three years so as to trigger mass adoption. Some of the steps requested by SMEV are- subsidy on all the EVs should be INR 20000/Kwhr of battery as it is for the buses; financing by Public sector banks; mandating businesses that use polluting vehicles for their operations to switch to electric and a major awareness campaign on the benefits of EVs by the Govt under "Swachh Bharat" initiative. The GST on the spares batteries is still 18 percent and that should also be brought down to 5% to ensure that the EV users continue to enjoy the low running cost advantage.”

Sulajja Firodia Motwani, Founder and CEO of Kinetic Green and Vice Chairperson, Kinetic Group said the GST reduction will promote usage of EVs in the country. "It gives clear direction to the industry also for shifting to EVs in times to come,” she said.

--With agency inputs

Updated Date: Jul 27, 2019 22:07:17 IST