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How will GST reshape the Electric Vehicles Market in India?

GST Impact164 views

Highlights

  • Will the reduction in GST rate on electric vehicles (EVs) to 5% from 12% help promote green energy in India?
  • According to experts, the move will work as an incentive to electric vehicle manufacturers and thus promote green energy in the country

Fifteen of the twenty most polluted cities in the world are in India. Our country managed to make a staggering 6.3% growth in the year 2018 from the previous year’s contribution (7%) in the total carbon emission by the world, which needs thinking of its own. Our country’s economic growth is also at an all-time high and with more growth, these numbers are only bound to increase. The government is trying to control it by taking various cautionary and awareness measures. One of the measures which they are taking is to promote the alternatives to fuel-based automobiles such as Electric Vehicles (EVs). India has set out a few important goals to achieve by 2020 which are as follows.

  • To add 175GW of total capacity through renewable energy by the year 2020
  • To achieve the number of 40 percent of electricity generation from non-fossil sources.
  • India has also obliged to reduce its greenhouse gas emissions below its 2005 levels by 2030, which would mean a reduction of around 33 to 35 percent.

Indian Government has been pushing the much-needed awareness programs to create an infrastructure of Electric Vehicles in the country. This will not only boost the major manufacturers to launch more electric vehicles but also will help the government to achieve the climate goals they’ve set for themselves. Electric vehicles are a need for today’s world and a fledging EV industry will also help in the government’s campaign of Clean India. But despite the major efforts, there has not been a major change in the sales of Electric Vehicles in India. To counter this and keeping the environmental changes in mind, the GST Council of India has recently made some changes to it which we will let you know in this article.

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What are the GST rates on Electric Vehicles and what are the recent changes made to it?

When the largest tax reform of India, Good and Services Tax (GST) was launched in India on July 1, 2017, it eliminated the previous complicated tax structure and considered to be an unprecedented event in the Indian Tax system. Under the GST Tax Slabs, Electric Vehicles come under the tax slab of 18 percent among the four slabs of 5%, 12%, 18%, and 28. But it didn’t see any major changes in the sales of Electric Vehicles due to the tax slab of 18% it was attached to.

Total Number of Two Wheelers sold in 20182,0,000,000
Number of Electric Vehicles sold in 201854,800
(0.27% of the total two-wheelers sold)

Also, according to the Economic Survey 2019, the share of electric cars in India stands at a much less number than the countries like China and Norway.

Name of the CountryShare of Electric Cars in total Vehicles
India0.06%
China2%
Norway39%

The initial GST on electric vehicles was set in the 12% tax slab and the tax rate on the electric vehicles chargers was at 18%. This gives a proper hint to the large dip industry has seen in the sales of EVs in the last three years. The manufactures were asking to cut the GST rates on the electric vehicles for long. On the recently concluded meeting of the GST Council on the 27th of July, 2019, the council decided to reduce the GST rate distinctly which you can see in the table below.

All these tax rates will be effective from 1 August 2019. This will certainly raise the demand of electric vehicles among the customers and will motivate both the entry-level and premier EVs manufacturers to increase their production scale. There were some other significant announcements made in the GST council meeting which are mentioned below.

  • The notable announcement made earlier in the annual budget of 2019 was to give income tax deduction up to Rs 1.5 Lakhs on the interest of the loan taken for any electric vehicles.
  • There will be no tax on the hiring of electric buses by the public authorities which can carry more than 12 people.
  • The change in GST rate on Electric Vehicles of 5% from 12% will make an upfront difference of around Rs 8,000 to Rs 10,000.
  • All these cuts in GST will motivate people to opt for electric vehicles and contribute towards a better environment for the future.
  • The only sour part among all the announcements was the no change in tax rates in the spare batteries of Electric Vehicles which still comes under the 18% tax slab and according to experts it also should cut down to 5 percent as it will help in the maintenance of the durability of the vehicles.

Do you know that more than 80% of the transport fuel need imported oil which makes a huge dent in the government’s account every year and it is increasing year by year? By switching to electric vehicles, we can easily lose your whole dependence on fossil fuels and strive towards a much cleaner environment.

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How will the second phase of the FAME scheme help in promoting the use of EVs in India?

The second phase of the FAME (Faster Adoption and Manufacturing of Electric Vehicles) is also set to implement from April 1. The highlights of this scheme are as follows.

  • For the next three years, all the hybrids and EVs will be exempted from any road tax and registration charges to create a PAN India infrastructure for electric vehicles.
  • The allocated budget for this scheme is said to be a total of Rs 10,000 crores over three years from 2019-20 to 2021-22.
  • Rs 1,000 crores is allocated for establishing the charging stations for Electric Vehicles in India.
  • It will incentivize people with Rs 10,000 on per Kilowatt for two-, three-, and four-wheelers, which will be dependent on the size of their batteries.
  • This scheme will also benefit the manufacturers who are hugley investing in the development of electric vehicle and its components.

This is certain that this reduced rate of GST on electric vehicles will make an impact on the sales and manufacture of the EVs. Big players like Hyundai Motor India, Mahindra & Mahindra, Hero Electric Limited, Ather Energy, Audi and many more are pretty much excited and motivated after the announcement. Seeing the government’s positive intention and much-needed spurs, this tax cut can play a pivotal role in India’s prospering Electric Vehicles Industry and many international players like Tesla Motors can come to India after the reformed tax structure which can be a major boost to India’s thriving economy.

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