EV Batteries in 5% GST Bracket to Support Faster Adoption

The GST rates on lithium-ion battery packs have been reduced by the government from 18 percent to 5 per cent which is the lowest tax category. A statement by the Finance Ministry held, “Electric vehicles, whether or not fitted with a battery pack, are eligible for the concessional GST rate of 5 percent.” This was decided in the 47^th GST Council meeting chaired by Finance Minister Nirmala Sitharaman in Chandigarh in June end.

This is not the first time that the tax on the batteries has been slashed by the government. The government reduced the GST on EV battery packs from 28 per cent to 18 per cent in 2018.

Experts believe that the move was long due and it will help raise the adoption of electric vehicles in the country as the prices of EVs will be cheaper. In electric vehicles, about half of the cost is that of the  lithium ion battery that is usually used.

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The slashing of GST on lithium-ion battery packs to 5% is in line with the statement by Nitin Gadkari, the Union Minister for Road Transport and Highways, who said that the prices of all electric vehicles are going to be equal to the cost of petrol vehicles in India in the coming one year.

Similarly, Amitabh Kant, the then Chief Executive Officer, NITI Aayog had also informed that the government was formulating means to bring down the tax rates on the batteries used in electric vehicles.

Rising EV adoption in India

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Data released by the Federation of Automobile Dealers Associations (FADA) indicates that the electric vehicle retail sales in India saw over a three-fold jump last fiscal.  The electric two-wheeler segment grew by a massive five fold. India Energy Storage Alliance (IESA), a leading think tank, held that the Indian EV market will grow at a CAGR of 36 per cent until 2026.

The Union Government has set a target of EV making up 30% of new sales of cars and two-wheelers by 2030. Hence, programmes like National Electric Mobility Mission Plan (NEMMP) and Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) are launched for faster adoption of electric vehicles in India.