In a big boost to electric vehicles in the country, the Goods and Services Tax (GST) Council on Saturday decided to slash the duty on all electric vehicles from 12 to 5 per cent as also on electric chargers for vehicles from 18 to 5 per cent. Further, GST has been exempted for hiring of electric buses by local authorities.
Electric vehicles typically cost over 50 per cent more than their petrol and diesel counterparts and the high price has been cited as one of the big impediments in their growth. The reduction of the duty, which was also promised by Finance Minister Nirmala Sitharaman in her maiden budget speech on July 5, is expected to reduce the price differential significantly. In the recently launched Hyundai Kona, for example, that costs over Rs 25 lakh, the reduction could be to the tune of over Rs 1.5 lakh.
"The government is lately showing very clear intentions of promoting EVs and GST reduction is one such measure in line with a series of actions taken by the government in the last few months. We welcome the 7 per cent reduction in GST as it will reduce the gap between EVs and IC (internal combustion) engine vehicles," said Sohinder Gill, director general, Society of Manufacturers of Electric Vehicles (SMEV). "If Fame 2 was a dampener, the GST reduction is certainly a bright spot in the National EV policy. The EV industry now awaits the corresponding reduction in spare batteries as it will help maintain low running cost of EVs over their lifetime."
Saturday's reduction that comes into force from August 1, is in line with the government's policy to encourage EVs and discourage vehicles that are run on fossil fuels like petrol and diesel at the same time. The government had announced a slew of incentives for EVs in the budget including income tax deduction on the interest on any loan on electric vehicle, lower import duty on a host of components and investment linked income tax exemption for setting up manufacturing for solar electric charging infrastructure and lithium storage batteries. Further, import duty on many electric components like E-drive assembly, on board charger, E compressor and charging gun has been scrapped.
"In order to boost economic growth and Make in India, the government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as lithium storage batteries and solar electric charging infrastructure and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits," said Sitharaman had said in her Budget speech. "Considering our large consumer base, we aim to leapfrog and envision India as a global hub of manufacturing of Electric Vehicles. Inclusion of Solar storage batteries and charging infrastructure in the above scheme will boost our efforts."
Electric mobility has been a major thrust area for the government that is keen to reduce the transport sector's dependence on imported fossil fuel. India imports nearly 84 per cent of its crude requirement every year.
At the same time, government has taken measures to disincentivise conventional vehicles by increasing the import duty on a number of components, some of them that are not even produced in the country in significant quantity, and raising the surcharge on petrol and diesel that increases the operating cost of these vehicles. Only in Friday, the department of road transport and highways proposed a steep hike in registration tax on internal combustion vehicles-two, three, four wheelers as well as commercial vehicles, while extending an exemption for electric vehicles.
"The reduced rate of GST on EVs should help foster demand for this environment friendly variant, through a tax arbitrage between conventional vehicles and EVs," said Abhishek Jain, tax partner, EY India. "Separately for a holistic outlook to this leitmotif, reduction in rate for infrastructure for these cars should provide further inducement to this sector."