In a major relief for electric vehicle (EV) manufacturers and buyers, the goods and services tax (GST) council on Wednesday (August 3) retained the 5% tax rate on pure electric vehicles.

Responding to a question about the tax levy attracted by EVs, revenue secretary Arvind Shrivastava, during the post-GST council briefing, clarified that “it remains at 5%”. The council also underlined that all categories of electric vehicles, whether mass-market or luxury, will continue to attract a GST rate of 5%, with no additional cess.

The retention comes as a major respite for the EV ecosystem after reports surfaced that the GST council was considering bringing premium EVs under higher tax slabs.

With this, domestic companies like Tata and Mahindra as well as foreign players like Tesla, Mercedes-Benz, BMW, and BYD will continue to sell their offerings under the concessional tax bracket. On the other hand, the move is expected to keep upfront costs low for customers while boosting the adoption curve for EVs.

The 5% rate for EVs is part of the broader GST rate rationalisation to simplify tax slabs and boost economic growth. Earlier on Wednesday, the council approved a major overhaul of the indirect tax regime and adopted a two-slab structure of 5% and 18% while retaining a special 40% rate for “sin goods”.

However, hybrids that qualify as small cars will attract a GST levy of 18% while larger petrol-electric and diesel-electric hybrids have now been pushed into the top tax bracket. To elaborate, vehicles with engines above 1200cc (for petrol) or 1500cc (for diesel), or length exceeding four metres, will now attract 40% GST, up from 28% previously.

The development comes at a time when India’s EV ecosystem continues to grow by leaps and bounds. Buoyed by policy push and incentives to spur localisation, a slew of startups have emerged in the EV, especially electric two-wheeler, space in the past few years.

The likes of Ola Electric and Ather Energy have even gone on to list on the exchanges while legacy giants like TVS Motor and Bajaj Auto have pulled all stops to grab a pie of the growing space. As per VAHAN data, total electric two-wheeler registrations stood at 1.04 Lakh units in August.

At the heart of all this is the growing Indian EV market, which is projected to become a $132 Bn opportunity by 2030.

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