How GST Council Revisions Aim to Boost Electric Vehicle Adoption in India

The 55th Goods and Services Tax (GST) Council meeting was held on Saturday and brought forth a series of important announcements regarding the GST structure for both new and used electric vehicles. The new GST regime is aimed at accelerating the adoption of EVs in India. They are also poised to have a major impact on the way businesses involved in the EV supply chain—from manufacturing to logistics—operate in an evolving market.

During the meeting, Finance Minister Nirmala Sitharaman confirmed that newly purchased EVs would continue to attract a GST rate of 5%, a policy decision that aligns with the government’s broader goal of promoting environmentally friendly transportation options across the country. This move is expected to provide a significant push to India’s efforts to reduce carbon emissions and promote cleaner mobility.

For logistics companies involved in the transportation and distribution of electric vehicles, the 5% GST provides clarity on costs and taxes, enabling better pricing strategies and smoother logistics planning. It is also expected to streamline the procurement process for suppliers and manufacturers, particularly those relying on imports for critical EV components like batteries and electric drivetrains, which often come from overseas markets. The lower tax rate may also help reduce the overall cost structure for businesses engaged in producing and delivering EVs.

One of the most discussed topics during the meeting was the taxation on used electric vehicles, which has been a matter of considerable debate within the industry. Sitharaman clarified that used EVs sold between individual buyers and sellers will not be subject to any GST. This comes as a relief to many in the second-hand vehicle market, particularly individual sellers and buyers, who can now engage in transactions without worrying about additional tax burdens.

However, the situation differs for used EVs bought by companies or those that have been refurbished and modified by sellers. In these cases, a higher GST rate of 18% will apply. Crucially, the GST will only be applicable on the margin value – that is, the difference between the purchase price and the selling price. This ensures that companies dealing in refurbished or modified vehicles are taxed on the value they add to the vehicle rather than its entire selling price, thus offering a more equitable tax treatment.

Sitharaman emphasized that the decision to apply an 18% GST on used EVs was not taken lightly. While the Centre initially proposed a lower 5% rate for used vehicles, the final decision was reached after extensive discussions and deliberations within the GST Council.

The meeting also addressed the lingering issue of the compensation cess, which has been a point of contention for several months. Sitharaman revealed that there is no specific timeline yet for when the Group of Ministers (GoM) will resolve the matter. The compensation cess, introduced to offset the revenue losses of states following the implementation of GST, has remained a complex issue with differing opinions on its future.

Despite speculation, Sitharaman confirmed that the compensation cess on certain goods and services would be applied prospectively and would notaffect vehicles that have already been sold. This means that vehicles already in circulation will not be subjected to retrospective taxes, offering relief to both consumers and dealerships alike.

By keeping the GST on new EVs at 5%, the government is encouraging both consumers and businesses to shift towards greener alternatives, which is in line with the country’s environmental and climate goals. On the other hand, the 18% GST on used EVs sold by companies or refurbished models ensures that the tax system remains fair and does not disproportionately impact businesses that deal with second-hand or modified vehicles.

For manufacturers, thE 5% tax rate means that procurement and supply chain costs will remain manageable. Components and raw materials required for EV production, especially for batteries and electric drivetrains, can be sourced at competitive prices, reducing the overall production cost and enhancing the efficiency of supply chain operations.

Industry experts believe that these changes will help foster growth in the EV sector, which has seen a surge in interest but still faces challenges in terms of affordability and availability. With the government’s clear stance on the taxation of EVs, businesses may be more inclined to invest in electric mobility, helping India achieve its ambitious target of having 30% of all vehicles be electric by 2030.

While the clarity on GST rates is a positive development, industry leaders are keenly awaiting further steps the government may take to foster EV adoption. Key factors such as the expansion of EV charging infrastructure, continued incentives for EV manufacturers, and policies that support research and development will be crucial in maintaining the momentum for electric mobility.

As electric vehicles gain ground in India, these steps taken by the GST Council are likely to form a cornerstone of a broader strategy aimed at making India a global leader in green mobility.