Tax on hybrid cars may soon be cut to 35%


To promote hybrid cars in India, the government might soon push for a lower Goods and Services Tax (GST) cess of 25 percent on “strong” hybrid cars which would make the effective tax rate 35 percent, according to Moneycontrol.

A multi-pronged approach to be adopted by the government to develop a positive environment for electronic vehicles (EVs), which includes lowering the tax rate.

“The GST rate on EVs has already been reduced to 12 percent as against the GST rates ranging from 28 percent to 45 percent in the case of internal combustion (IC) vehicles. Strong hybrid cars are also capable of reducing COemissions … They can be extended some GST benefits of say, 25 percent, as compared to ICE vehicles,” a note from the latest meeting, held on December 13 said.

The current tax rate for hybrid and ICE vehicles is 43 percent (including cess). After it was noted that the overall tax incidence had come down after the implementation of GST, the council, in September 2017, decided to hike cess on mid-sized cars by 2 percent, taking the effective GST rate to 45 percent. Likewise, cess on large cars was hiked by 5 percent, taking the total GST incidence to 48 percent while that of SUVs to 50 percent.

The decision, which was taken at a meeting called by National Institution for Transforming India (NITI) Aayog to decide the roadmap for future mobility in the country, was attended by officials from ministries of road transport, petroleum and natural gas, non-renewable energy, power, department of commerce, department of revenue and department of science and technology.

“A smooth progression towards electric mobility is the right way for the future… A collaborative approach can help to accelerate e-mobility in India in a sustainable manner,” the committee observed.

At the meeting, the committee decided to adopt a three-pronged approach comprising “driving demand for EVs, increasing supply volumes and creating a positive ecosystem for EVs”.

“The committee has decided to divide work among various ministries… While NITI Aayog will be responsible for laying down definitive policy for EVs and time-framework for transmission, Road transport ministry along with state transport department will be responsible for creating a favorable ecosystem, stimulating EV market and nudging aggregators to induct EVs on an incremental basis,” sources said.

According to the Society of Manufacturers of Electric Vehicles (SMEV), 56,000 units EVs were sold last year. The number is expected to double this fiscal year to touch about one Lakh units.

The reasons for lower sale range from significant affordability gap and low level of consumers’ acceptance to low level of EV manufacturing activities (i.e. lack of supply), lack of comparable products (especially in the two-wheelers category) and non-existent public charging infrastructure.

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