Government reduces GST rate on electric vehicles to 5%

29/07/2019 - 11:23 | ,  ,   | Suvil Susvirkar

Following the announcement made in the 2019 Union Budget, the GST Council has reduced the GST on electric vehicles from 12% to 5%. The reduced GST rate is also applicable to electric vehicle chargers. Moreover, the Council has also approved an exemption from GST on the hiring of electric buses by local authorities.

Ather Grid Charging Network Outdoor Shot 2
The reduced GST rate on electric vehicles and chargers will be applicable from 1 August.

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The revised rates will be applicable from 1 August. The reduction in the GST rate aims to boost the sales of electric vehicles in the Indian market and meet the government’s optimistic target of mass electrification of two-wheelers under 150 cc by 2025.

Society of Indian Automobile Manufacturers welcomed the government’s decision to reduce the GST rate on electric vehicles. Speaking about the GST cut, Rajan Wadhera, President, Society of Indian Automobile Manufacturers, said:

Government’s vision of increasing electric mobility in the country has been acknowledged by GST council by significantly reducing GST rate on electric vehicles. 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.

While Wadhera congratulated the government, he also spoke about the difficult time that the automotive industry is currently going through, and requested the government’s intervention to stimulate demand.

Electric vehicle manufacturers also expressed their gratitude by the government’s decision. Expressing his views about the GST cut, Tarun Mehta’s, CEO and Co-founder, Ather Energy, said:

The Union budget gave a much-needed push to the EV industry and the outcome of the GST Council meeting is even more welcoming.

Mehta added that the government should also review the taxation framework on raw material and the final product. He said:

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%. This structure results in significant working capital blockage. Even with the existing GST inverted duty refund framework in place, there is working capital blockage on the overheads and capital investments. A comprehensive GST refund structure of electric vehicle manufacturers or a reduced GST liability on the raw material should be assessed for seamless cash flows in the long run.

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The GST cut aims to boost the sales of electric vehicles in order to reduce the demand for ICE-powered vehicles and thus curb fuel imports.

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Regular readers would know that the government had previously announced the FAME-II scheme. The new scheme came with a bigger allocation (INR 10,000-crore) than the FAME-I (INR 895 crore).

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