Home / Politics / Policy /  Traditional manufacturers, startups cheer reduction in GST on electric vehicles

New Delhi: The automobile industry welcomed the decision of the Goods and Services Tax council to put electric vehicles on the 5% slab from 12% earlier. This decision of the government along with other policy measures are aimed at promoting electric mobility in the country.

Manufacturers of electric vehicles were clamouring for a rate reduction for a long time as the industry is in a nascent stage an will need policy support from the government to flourish.

According to Rajan Wadhera, president, Society of Indian Automobile Manufacturers (Siam), government’s vision of increasing electric mobility in the country has been acknowledged by GST council by significantly reducing GST rate on electric vehicles.

“Over the years, this will help popularise electric vehicles and increase penetration in the country.We are thankful to the GST council for accepting these recommendations which were proposed by SIAM in our white paper which was released last year to promote the growth of electric vehicles in India," added Wadhera.

GST councils decision to reduce taxes will help startups in the mobility space since theirs products can now become competitive in the market as a result of the tax reduction and subsidy under the second phase of the Faster Adoption and Manufacturing of Electric Vehicles (Fame-2) scheme.

According to Tarun Mehta, founder Ather Energy, an electric scooter manufacturing start up, the reduction of GST rates from 12% to 5% reduces the upfront cost of buying a vehicle by 8,000 to 10,000. Compounded by the tax rebates offered in the Union Budget, today electric vehicles are an affordable upgrade from existing ICE options.

“As a manufacturer, we would like the centre to review the current taxation framework applicable on raw material and the final product. There is an inherent inverted duty structure as the GST input on raw material and other overheads are on average of 18 % wherein the output is now going to be pegged at 5%," added Mehta.

In her maiden budget, finance minister Nirmala Sitharaman announced income tax rebates of up to 1.5 lakh to customers on interest paid on loans to buy electric vehicles, with a total exemption benefit of 2.5 lakh over the entire loan period. The minister also announced customs duty exemption on lithium–ion cells, which will help lower the cost of lithium-ion batteries in India as they are not produced locally. Makers of components such as solar electric charging infrastructure and lithium storage batteries and other components will be offered investment linked income tax exemptions under Section 35 AD of the Income Tax Act, and other indirect tax benefits.

"We welcome the GST Council’s decision to slash the GST on electric vehicles to 5% from 12% and reduced tax rate on EV chargers from 18% to 5%. The 7% tax reduction on electric vehicles along with the tax rebates proposes in Union Budget will definitely encourage the shift towards electric mobility," Jeetender Sharma, founder and managing director, Okinawa Autotech Pvt Ltd.

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