GST For EVs Steady At 5%: Why Did GoM Propose A Rate Hike Of 18%?

The Goods and Services Tax (GST) Council on Wednesday has decided to keep the concessional 5% GST rate on electric vehicles (EVs) unchanged as opposed to speculations making round. The Council approved a two-tier rate structure of 5 and 18% which will be implemented from September 22.

Under the new two-slab structure, 5% is for essentials and 18% is the standard rate, along with a 40% bracket for sin and luxury items. There had been speculation that premium EVs could be shifted to higher slabs. However, the Council clarified that all categories of EVs, whether mass-market or luxury, will continue under the 5% rate with no additional cess.

Earlier, the Group of Ministers (GoM) or the tax panel, which advises the GST Council had recommended increasing GST on EVs from 5% to 18% for vehicles priced between $23,000 and $46,000, and to 28% for those above $46,000 saying such vehicles cater to the "upper segment" of society and are largely imported rather than manufactured in India.

Since the Modi government had decided to remove the 28% tax rate, it was speculated that GST Council would consider increasing the tax on EVs to 18%, or put them in the newly planned 40% category carved out for certain luxury goods. However, the Council has clarified that all categories of EVs, whether they are catering to mass-market or luxury, will continue under the 5% rate with no additional cess.

Small cars and entry-level bikes are set to get cheaper as the GST Council approved a complete overhaul of the tangled GST regime. Petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length would move to the 18% rate from the current 28%

Motorcycles up to 350 cc would be taxed at a lower GST of 18% against 28% currently. All automobiles above 1,200 cc and longer than 4,000 mm as well as motorcycles above 350 cc and racing cars will be charged with a 40% levy.

Presently, automobiles are taxed at 28% which is the highest GST slab. A compensation cess, ranging from 1 to 22%, is levied on top of this rate, depending on the type of vehicle. The total tax incidence on cars, depending on engine, capacity and length, ranges from 29% for small petrol cars to 50 % for SUVs. Besides, GST on auto components has been reduced to 18% from the current 28%.