GST Council reduces rate on electric vehicles from 12% to 5%

Modi government's big push to promote electric vehicle in India

The Dependent Bureau, New Delhi:

Federal indirect tax body, the Goods and Services Tax (GST) Council, on Saturday decided to reduce tax rates on electric vehicles and chargers from 1 August.

The tax rate is reduced from 12% to 5% on vehicles and from 18% to 5% on electric vehicle chargers.

The Council also made hiring of electric buses by local authorities tax free, said an official.

The exemption is applicable on buses with a carrying capacity of more than 12, as per an official statement. The statement also said that the lower 5% tax rate on chargers is applicable to charging stations too.

The tax cut is part of the support that policy makers want to give to electric mobility and to reduce the dependence on fossil fuels for transportation. India has committed to contributing to the global efforts to cut down carbon emissions and is taking leadership on this. In 2015, New Delhi announced it's climate goal of reducing the emissions intensity of the country's gross domestic product (GDP) by 33-35% by 2030 from 2005 levels. India is also committed to achieving 40% of its cumulative electric power from non-fossil fuel-based energy resources.

India's energy policy stresses on adding renewable and less polluting sources in its energy mix while ensuring access to electricity for all in order to improve quality of life.

The share of electric vehicles in India is negligible at the moment. The government wants to accelerate production of electric vehicles as well as its adoption by consumers through incentives. Finance Minister Nirmala Sitharaman had in her FY19-20 budget announced tax relief for purchase of electric vehicles too.

Experts welcomed the move.

"The reduced rate of GST on electric vehicles should help foster demand for this environment friendly variant, through a tax aribtrage between conventional vehicles and EVs," said Abhishek Jain, Tax Partner, EY India.