Understanding Goods and Services Tax Implications for Electric Vehicle Charging Stations
This article explores the Goods and Services Tax (GST) implications for electric vehicles (EVs) and their charging infrastructure in India. It details the reduced GST rates for EVs and charging stations, alongside specific exemptions like those for electric buses. The discussion clarifies the contentious issue of whether EV charging constitutes a sale of electricity or a service, and how this impacts Input Tax Credit (ITC) availability for businesses and charging station operators, highlighting the current disparities and the need for further clarification from tax authorities.
The increasing cost of conventional vehicles and fuels is prompting many consumers and public transport providers to adopt electric vehicles (EVs) as a sustainable and economical alternative. EVs offer efficiency, environmental benefits, and long-term cost savings by eliminating fuel consumption.
A growing number of manufacturers, including Ather Energy, Ola Electric, Hero Electric, and Tata Motors, are entering the EV market. The Delhi government has even directed e-commerce platforms like Zomato, Swiggy, and Ola to incorporate EVs into their delivery fleets.
Budget 2023 Updates
The Union Budget 2023 introduced significant changes to support the EV sector:
- Basic Customs Duty (BCD) was removed on specific capital goods and machinery essential for producing Lithium-ion cells, which are crucial components in EV batteries.
- The BCD exemption for Lithium-ion cells used in manufacturing batteries for cellular mobile phones, EVs, and hybrid motor vehicles was extended until March 31, 2024.
Services Provided in the Electric Vehicle Sector
Companies operating in the electric vehicle industry typically offer a range of services alongside vehicle sales. These include providing portable chargers, offering performance upgrades for specific models, and performing scheduled maintenance.
Beyond vehicle sales, EV and other electric companies are establishing charging stations to allow for faster recharging compared to standard home chargers. Additionally, post-purchase, EV companies often provide subscription-based application services that offer features such as vehicle health monitoring, maintenance scheduling, roadside assistance, and puncture repair services.
GST Rates and HSN Code for Electric Vehicles
During its 36th meeting, the GST Council made a pivotal decision to reduce the GST rate on electric vehicles from 12% to 5%. Similarly, the GST rate on chargers and charging stations was lowered from 18% to 5%. These reductions aim to stimulate growth in the electric vehicle market. The sale of electric vehicles is classified under HSN code 870240.
GST Exemptions for Electric Vehicles
Certain electric vehicle services are currently exempt from GST. Specifically, the hiring of electric buses with a seating capacity exceeding 12 passengers by local authorities is not subject to GST. Consequently, GST generally applies only to the sale of electric vehicles and any other auxiliary services provided by EV companies.
Input Tax Credit for EV Charging Stations and Business Users
The primary function of an EV charging station involves transferring power to electric vehicle batteries. This process raised questions about whether it constitutes a sale of electricity or a service.
The Ministry of Power has clarified that charging EV batteries should be treated as a service, not a sale of electricity, thus eliminating the requirement for a license under the Electricity Act, 2003. The Supreme Court has also acknowledged that electricity is a movable good. When electricity reaches a consumer, its supply and consumption are monitored by meters installed by the electricity provider, and there are no supply barriers during transmission.
Considering these clarifications, charging EV batteries would be subject to GST. Consequently, companies operating EV charging stations are eligible to claim input tax credit (ITC). This eligibility is contingent upon the goods and services being used for business purposes and not falling under any negative list provisions of GST.
Similarly, taxpayers who utilize EV charging station services can claim GST input tax credit only if the electric vehicle is used for business activities. No GST credit can be claimed if the motor vehicle is primarily for personal use.
Conversely, if EV charging were classified as a sale of electricity, the services would be exempt from GST, and EV charging companies would not be able to claim any input tax credit.
Currently, the infrastructure for EVs is still evolving. Many individuals opt to charge their electric vehicles at home or their workplaces, where the supply of electricity is already exempt from GST. This situation creates a tax discrepancy when comparing home or office charging with charging at commercial EV stations.
Given the varying interpretations and lack of definitive guidance on this matter, it is highly recommended that the Central Board of Indirect Taxes and Customs (CBIC) promptly issue clear clarifications regarding the taxability of EV charging stations and the eligibility for input tax credit.