Understanding Goods and Services Tax on Electric Vehicles in India
This article explores the Goods and Services Tax (GST) implications for electric vehicles (EVs) in India, highlighting their role in the nation's sustainability goals. It details the current 5% GST rate for EVs and charging infrastructure, explaining how reduced taxes significantly lower vehicle prices and boost market demand. The piece also covers various government incentives, such as the PM E-Drive scheme and income tax deductions, while acknowledging ongoing challenges like high battery costs and insufficient charging infrastructure.
India has committed to sustainability, aiming for net-zero emissions by 2070. Electric Vehicles (EVs) play a crucial role in achieving this goal by reducing carbon emissions and fostering a cleaner environment. Therefore, it is essential to understand the Goods and Services Tax (GST) implications for electric vehicles and their impact on consumers. This article explores how GST policies and government initiatives are influencing the electric vehicle market.
Key Takeaways The 56th GST Council meeting introduced significant updates, with changes effective from September 22, 2025:
- Electric vehicles (EVs) will continue to attract a 5% GST rate.
- Other motor vehicles have seen revised rates, now at 18% for smaller vehicles and 40% for larger SUVs and high-engine capacity models.
Current GST Rates for Electric Vehicles
To encourage mass adoption, GST rates on EVs and their charging stations were reduced in 2019, making them more affordable. The Harmonized System of Nomenclature (HSN) code for EV cars is 870240. The current GST rates are detailed in the table below:
| Particulars | Current GST Rates (After Aug 2019) |
|---|---|
| EV Cars | 5% |
| EV 2-wheelers and 3-wheelers | 5% |
| Electronic Charging Stations | 5% |
| Sale of used EV by businesses after refurbishment | 18% |
| Petrol/CNG/LPG/Diesel Vehicles | 28% |
GST on EV Components and Services
GST extends beyond just the sale of electric vehicles, impacting the related industries. To truly comprehend the influence of GST on electric vehicles in India, it is vital to examine its effect on ancillary EV products. Here’s how various components within the EV ecosystem are taxed under GST:
- EV Batteries: The GST on EV batteries is 5%, a rate reduced from 18% in 2022.
- Charging Infrastructure: This category includes chargers, charging stations, and associated equipment, all currently subject to a 5% GST rate.
- EV Spare Parts and Accessories: These items fall under the general classification for unlisted goods and do not attract specific EV GST rates. They are currently taxable at 28%, an increase from the earlier 12%.
- Maintenance & Repairs: Servicing electric vehicles incurs an 18% GST charge on the total service cost.
- Software for EVs: The GST on software utilized in electric vehicles can range between 5% and 18%, depending on its specific type.
How GST Affects Electric Vehicle Pricing
The impact of GST on electric vehicles is multifaceted. However, we can observe how the reduction in GST rates on EV cars from 12% to 5% directly influences consumer costs. Let’s compare the purchase of a vehicle priced at Rs. 10 Lakhs, considering an EV versus a Petrol/Diesel vehicle:
| Particulars | EV @ 12% (Old) | EV @ 5% (New) | Petrol/Diesel Car @ 28% |
|---|---|---|---|
| Cost | 10,00,000 | 10,00,000 | 10,00,000 |
| GST | 1,20,000 | 50,000 | 2,80,000 |
| Total Cost | 11,20,000 | 10,50,000 | 12,80,000 |
This example clearly illustrates the effect of GST rates on EV cars. Purchasing an EV in India instead of a petrol/diesel car can result in savings of Rs. 2.30 Lakhs in GST. Furthermore, the rate reduction from 12% to 5% saved the buyer Rs. 70,000 in this scenario. How does this impact the overall market?
- Lower Costs: The final price of EVs is considerably lower than that of petrol/diesel vehicles due to the reduced GST.
- Increased Demand: Lower GST rates on EV cars make them more attractive to a broader customer base, thereby increasing demand.
- Support for Commercial EV Adoption: GST advantages also extend to commercial EVs, fostering the adoption of electric taxis and delivery vehicles.
Government Incentives and Subsidies for EVs
The benefits for EVs are not limited to low GST rates. Various government schemes offer subsidies and incentives to electric vehicle users. Here are some of the important ones:
- PM E-Drive: To boost EV demand nationwide, the government approved FAME-II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles). Following the conclusion of FAME-II this year, the PM E-Drive scheme was launched to continue benefits under FAME III. Applicable from October 2024 to March 2026, this scheme provides subsidies on the purchase of:
- E-2 Wheelers
- E-3 Wheelers
- E-Trucks
- E-Ambulances
- E-Buses Under this scheme, Rs. 5,000 per Kwh will be provided for FY 2024-25, and Rs. 2,500 per Kwh for FY 2025-26, specifically for EV 2-wheelers and 3-wheelers.
- Demand Incentive: The Ministry of Heavy Industry (MHI) will issue e-vouchers under the PM E-Drive scheme to offer an upfront discount on EV purchases. Registration on the PM E-Drive Portal and KYC completion are required to avail this demand incentive.
- Section 80EEB Deduction: A deduction of interest on a loan for purchasing EVs is provided for income tax purposes, up to Rs. 1.5 lakhs per year. However, this deduction is exclusively available under the Old tax regime.
- PLI Schemes: The government is offering production-linked incentives to automotive companies for domestically manufacturing EV parts, which helps make EVs cheaper.
- State-Level Subsidies: State governments also provide various benefits to EV buyers, including:
- Interest Subvention
- Road Tax Exemption
- Registration Fees Exemption
- Scrapping Incentives
Impact on the Electric Vehicle Market and Adoption
The reduced GST on electric vehicles has positively influenced the EV market:
- Sales Growth: EV sales witnessed a significant 91% increase in FY 2023-24.
- Domestic Production: The Production-Linked Incentive (PLI) scheme and favorable GST rates on electric vehicles have spurred local manufacturing of EVs and their components.
- Infrastructure Expansion: Both production and charging infrastructure are developing steadily, driven by the reduced GST rates on EV cars and charging stations.
Global Comparison of EV Tax Policies
| Countries | VAT/GST rate on EV Cars | VAT/GST rate on EV Charging Stations |
|---|---|---|
| India | 5% | 5% |
| United States | Sales Tax varies by States | Sales Tax varies by States |
| United Kingdom | 20% | 20% |
Challenges and Opportunities in the EV Sector
Despite the low GST on electric vehicles, the EV industry in India encounters several challenges. Let’s examine both the hurdles and potential opportunities for the EV industry:
| Challenges | Opportunities |
|---|---|
| * High battery costs remain a primary concern for EV buyers. |
- Inadequate charging infrastructure deters potential customers.
- Regulatory obstacles make accessing state-wise subsidies more complex.
- Manufacturers face issues with Input Tax Credit (ITC) refunds on capital goods and input services due to an inverted duty structure, leading to blocked funds and a cascading effect. | * Significant demand growth in electric taxis and delivery vehicles.
- PLI schemes actively promote local EV production. |
The government has reduced GST on electric vehicles to enhance their affordability and encourage widespread adoption. The combination of government schemes and incentives, alongside the reduced GST rate on EV cars, is driving climate initiatives. However, several critical challenges, such as high battery costs and insufficient charging infrastructure, still require attention.