In a positive development towards increasing electric mobility in the country, the government has cut the applicable rate of Goods and Services Tax (GST) on electric vehicles (EVs).

The 36^th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, decided that GST rate on all the electric vehicles be reduced from 12% to 5%.

Moreover, the GST rates on chargers or charging stations for EVs have been reduced from 18% to 5%. The council also decided that the hiring of electric buses (carrying capacity more than 12 passengers) by local authorities will be exempted from GST.

These changes will come into effect from August 1, 2019.

Sohinder Gill, Director General of the Society of Manufacturers of Electric Vehicles (SMEV), told Mercom, “After the reduced subsidies and duty changes in FAME India II, the price of affordable segment EVs had gone up by around 20%. Reduction in GST is a very positive and welcome move, as it will reduce the prices by 7%. This move also sends clear signals to the industry on the governments’ seriousness in promoting EVs. However, even after the GST reduction, the prices of the affordable segment EVs will still be much higher than IC (internal combustion) engine vehicles and will remain the biggest stumbling block for purchase. The industry and the government must work together to create price parity for two to three years so as to trigger the mass adoption of EVs. Some of the steps requested by SMEV are: subsidy on all the EVs should be ₹20,000 (~$ 290.20) /kWh of battery as it is for the buses; financing by public sector banks; mandating businesses that use polluting vehicles for their operations to switch to electric; and a major awareness campaign on the benefits of EVs by the government under “Swachh Bharat” initiative. The GST on the spare batteries is still 18% and that should also be brought down to 5% to ensure that the EV users continue to enjoy the advantage of a low running cost”.

The need to counter air pollution (some of the most polluted cities in the world are in India) and rising fuel prices are a strong prerogative to push for the EV boom in India.

In the latest Union Budget for FY 2019-2020, the Modi government provided strong support to the nascent electric vehicle industry with the announcement of tax incentives to speed up the transition of the automobile industry from fossil fuel dependent to electric.

This GST rate cut, along with the recent move to exempt EV registration fees, and the tax incentives will help catapult the electric vehicle uptake in the country. The charging station infrastructure segment is also growing with foreign players and foreign direct investment (FDI) flowing into the industry.

During her Union Budget speech, the Finance Minister had announced a plan to make India a global hub for EV manufacturing. Keeping all these developments in view, along with the recent GST rate cuts, the clean mobility transition in the country looks promising.

Moreover, the Finance Ministry has approved ₹40 billion (~$0.58 billion) as a subsidy that will be spent under phase II of the FAME India program. This phase will entail subsidies exclusively for electric buses and for setting up charging infrastructure across all vehicle segments.

Ramya Ranganath is an Associate Editor and Writer for Mercom Communications India. Before joining Mercom, Ramya worked as a Senior Editor at a digital media supply chain solutions company. Throughout her career, she has developed end-to-end content for various companies in a wide range of domains, including renewables. Ramya holds a bachelor’s degree in Mechanical Engineering from M.S. Ramaiah Institute of Technology and is passionate about environmental issues and permaculture.