GST on Electric Vehicles (EVs): Latest Rates and Impact

India has pledged to work for sustainability and become a net zero country by 2070. Electric Vehicles are the key to reducing carbon emissions and fostering a cleaner environment. So, it is crucial to understand the GST on electric vehicles and their impact on customers. This blog discusses how GST on electric vehicles and government policies shape the EV market.

Latest Updates

21st December, 2024

In its 55th meeting, the GST Council has addressed the issue of taxing used EV sold by one individual to another and confirmed that no GST would be applicable. However, if the businesses sells a used EV after refurbishments, the GST at 18% will be charged on margin value (Purchase price minus sale price) as would be for any other used car.*

Goods/Services	Current Rate	Recommended Rate
Sale of used Electric Vehicles (EV) by and to individuals	Taxed higher since not clarified	5%
Sale of used EV by businesses after refurbishment	12%	18% on their profit

*The same would be given effect through the relevant circulars/ notifications.

Current GST Rate on Electric Vehicles

The GST rates on EV cars and charging stations were cut in 2019 to make them more affordable for mass adoption. The HSN code for EV cars is 870240. The current GST rates are as follows:

GST on EV Products and Services

GST is not limited to the sales of electric vehicles, but it even affects the industries that operate in concert. To truly understand the impact of GST on electric vehicles in India, it is essential to learn about its impact on EV ancillary products. Here’s how different components within the EV ecosystem are taxed under GST:

•  EV Batteries: The GST on EV batteries is 5%. In 2022, it was dropped to 5% from 18%.
• Charging Infrastructure: This includes chargers, charging stations, and related equipment. Currently, the GST rate on EV charging infrastructure is 5%.
• EV spare parts and accessories: EV spare parts are covered under the general category for unlisted goods. Hence, they do not attract any special GST rates. Currently, they are taxable at 28% instead of 12% earlier.
• Maintenance & Repairs: The GST on servicing EVs is 18%, which is charged for the entire service.
• Software for EVs: The GST on electric vehicle software can range between 5%-18% depending on the type of software used.

Impact of GST on Electric Vehicle Pricing

The impact of GST on electric vehicles is multifold. It cannot be seen as limited to only one aspect. However, we can understand how the drop from 12% to 5% in the GST rates on EV cars can affect consumers. Let’s see what buying an EV or a Petrol/Diesel Vehicle costs Rs. 10 Lakhs is like in your pocket.

The impact of GST rates on EV cars is evident from the above example. Buying an EV in India instead of a petrol/diesel car can save Rs. 2.30 Lakhs in GST. The 12% to 5% rate reduction has also saved Rs. 70,000 for the buyer in the above example. How does this impact the overall market? Let’s see:

• Lower Costs: The price of EVs is much lower than that of petrol/diesel vehicles because of the lower GST.
• Increased Demand: Low GST rates on EV cars make them attractive to more customers and increase demand.
• Support for Commercial EV Adoption: The GST benefits also extend to commercial EVs. Hence, it boosts the adoption of electric taxis, delivery vehicles, etc.

Government Incentives and Subsidies on EVs

The benefits of EVs are not limited to the low GST rates on EV cars. Various government schemes provide subsidies and incentives to EV users. Here are some of the important ones:

• PM E-Drive: To increase the demand for EVs in the country, the government approved FAME-II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles). Under this scheme, EV buyers in different categories received demand incentives. Following the erstwhile FAME II scheme that ended this year, the government has launched the PM E-Drive scheme to cover the benefits under FAME III. Applicable from October 2024 to March 2026, the government is providing subsidies on the purchase of:
  • e - 2 Wheelers
  • e - 3 Wheelers
  • e - Trucks
  • e - Ambulances
  • e - Buses

Under the scheme, Rs. 5,000 per Kwh will be provided for FY 24-25 and Rs. 2,500 per Kwh for FY 25-26 for EV 2-wheelers and 3-wheelers.

• Demand Incentive: The MHI (Ministry of Heavy Industry) will issue e-vouchers under the PM E-Drive scheme to provide a discount upfront on the purchase of EVs. You can register for the PM E-Drive Portal and complete your KYC to benefit from this demand incentive.
• 80EEB: Deduction of interest on a loan for buying EVs is provided for income tax up to Rs. 1.5 lakhs per year. However, this deduction is only available in the Old tax regime.
• PLI Schemes: The government is offering production-linked incentives to auto companies for manufacturing EV parts domestically, which is making EVs cheaper.
• State-Level Subsidies: State governments also provide benefits to EV buyers, including:
  • Interest Subvention
  • Road Tax Exemption
  • Registration fees exemption
  • Scrapping incentives

Impact on the EV Market and Adoption

The lower GST on electric vehicles has had a positive impact on the EV market:

• Increased Sales: The sales of EVs have seen a 91% increase in FY 2023-24. 
• Domestic Manufacturing: The PLI scheme and low GST on electric vehicles has boosted the local production of EVs and their components.
• Infrastructure Development: Both production and charging infrastructure are being built steadily. The reduced GST rates on EV cars and charging stations have led to this increase.

Comparison with Global GST/VAT Policies on EVs

Challenges and Opportunities on EV Cars

Despite the low GST on electric vehicles, the EV industry in India faces many challenges. Let’s look at the challenges and opportunities for the EV industry:

The government has reduced GST on electric vehicles to make them more affordable and widespread. The combination of government schemes and incentives, along with the reduced GST rate on EV cars, is leading the climate initiative. However, many challenges, like high battery costs, lack of charging infrastructure, etc., need to be corrected first.

Read more:
GST Impact on Car Prices & Other Automobiles in India
GST on SUV Cars: GST and Compensation Cess Rates on SUV Cars in India