Consumer interest in electric vehicle (EV) and its sales has surged with rising fuel costs in India. The access to subsidies and development of supporting infrastructure has helped in the boom. India’s pledge at the COP26 summit to achieve net-zero emissions would require more policy initiatives for making the capital incentive EV ecosystem more resilient.
Extension of Faster Adoption & Manufacturing of Electric Vehicles (FAME India) to July 2024, and increase in budget outlay (PLI scheme) for the sector encourages domestic production of EV and its components has also created a positive ecosystem for the advancement of the industry.
Now, the expectations of the sector from GST council is to continue the policy momentum set by new EV policy to promote localisation and domestic value addition. The industry hopes on a favourable policy initiative at GST Council to drive the nascent industry. The rate rationalisation, promoting hybrid and alternative fuel vehicles, alleviating the pain of inverted duty structure and capital incentives or end use-based concessions for the sector is the need of the hour.
We are discussing here few of the proposals before the GST Council:
Inverted Duty Challenges Faced By The Sector
Lithium-ion batteries constituting major cost of EV’s attracts 18% GST leading to inverted duty and blocking of working capital. The 52nd GST Council did not appreciate the challenges faced by the industry in light of multiple end-use of the batteries. It is expected that the decision can be reconsidered in terms of new EV manufacturing policy and tax relief in form of end-use can be explored by the GST Council meeting.
Further, EV sector being a capital-intensive industry, there is no refund of input tax credit (ITC) on capital goods and input services to the manufactures due to inverted duty structure. This has resulted into cascading effect and nullifying the impact of reduced output GST rate of 5% on EVs. Policy level support is required to augment the new EV manufacturing policy announced by the Government.
Concessional Rate FFV’s and Hybrid Vehicles
Concessional GST rate extended to EV vehicles are not available to FFV’s and Hybrid Vehicles. To endeavour our global commitments for zero emissions, the focus should not be limited to EVs. Fiscal benefits should also be passed on to other environmentally friendly alternatives such as Flex Fuel Vehicles (‘FFV’s) and Hybrid Vehicles. Extending incentives and tax reliefs to FFV’s and Hybrid Vehicles will increase the market for flex fuel-powered vehicles.
The Heavy Industries Ministry in consultation with stakeholders discussed the reduction in rate of GST on FFV’s. Sugar industry through Indian Sugar Mills Association (ISMA) has also sought for a relaxation in GST rate on FFV’s. The reduction in GST rate on Ethanol meant for blending from 18% to 5% in order to promote ethanol blending under the Ethanol Blended Petrol Programme is a right step in the direction. The entire ecosystem can be extended with similar concessions to reduce the impact of inverted duty structure.
Clarifications on Meaning of Electrically Operated Vehicle
Though, in 2022, the CBIC clarified that GST rate on ‘electrically operated vehicle’ without any battery will fall in the 5% bracket, it is expected that GST Council provides further clarification on the extended meaning and scope of ‘electrically operated vehicles’ in the light of upcoming hybrid technologies. The industry is also expecting clarifications from GST Council on battery swapping, pay and use charging infrastructure, and last mobility /connectivity solutions.
—The authors; Bhoomi Kuroop, is Associate, Rinkal Patel, is Consultant, and Asish Philip, is Partner, at the leading corporate law firm Lakshmikumaran & Sridharan (LKS). The views expressed are their personal.
Extension of Faster Adoption & Manufacturing of Electric Vehicles (FAME India) to July 2024, and increase in budget outlay (PLI scheme) for the sector encourages domestic production of EV and its components has also created a positive ecosystem for the advancement of the industry.
Now, the expectations of the sector from GST council is to continue the policy momentum set by new EV policy to promote localisation and domestic value addition. The industry hopes on a favourable policy initiative at GST Council to drive the nascent industry. The rate rationalisation, promoting hybrid and alternative fuel vehicles, alleviating the pain of inverted duty structure and capital incentives or end use-based concessions for the sector is the need of the hour.
We are discussing here few of the proposals before the GST Council:
Inverted Duty Challenges Faced By The Sector
Lithium-ion batteries constituting major cost of EV’s attracts 18% GST leading to inverted duty and blocking of working capital. The 52nd GST Council did not appreciate the challenges faced by the industry in light of multiple end-use of the batteries. It is expected that the decision can be reconsidered in terms of new EV manufacturing policy and tax relief in form of end-use can be explored by the GST Council meeting.
Further, EV sector being a capital-intensive industry, there is no refund of input tax credit (ITC) on capital goods and input services to the manufactures due to inverted duty structure. This has resulted into cascading effect and nullifying the impact of reduced output GST rate of 5% on EVs. Policy level support is required to augment the new EV manufacturing policy announced by the Government.
Concessional Rate FFV’s and Hybrid Vehicles
Concessional GST rate extended to EV vehicles are not available to FFV’s and Hybrid Vehicles. To endeavour our global commitments for zero emissions, the focus should not be limited to EVs. Fiscal benefits should also be passed on to other environmentally friendly alternatives such as Flex Fuel Vehicles (‘FFV’s) and Hybrid Vehicles. Extending incentives and tax reliefs to FFV’s and Hybrid Vehicles will increase the market for flex fuel-powered vehicles.
The Heavy Industries Ministry in consultation with stakeholders discussed the reduction in rate of GST on FFV’s. Sugar industry through Indian Sugar Mills Association (ISMA) has also sought for a relaxation in GST rate on FFV’s. The reduction in GST rate on Ethanol meant for blending from 18% to 5% in order to promote ethanol blending under the Ethanol Blended Petrol Programme is a right step in the direction. The entire ecosystem can be extended with similar concessions to reduce the impact of inverted duty structure.
Clarifications on Meaning of Electrically Operated Vehicle
Though, in 2022, the CBIC clarified that GST rate on ‘electrically operated vehicle’ without any battery will fall in the 5% bracket, it is expected that GST Council provides further clarification on the extended meaning and scope of ‘electrically operated vehicles’ in the light of upcoming hybrid technologies. The industry is also expecting clarifications from GST Council on battery swapping, pay and use charging infrastructure, and last mobility /connectivity solutions.
—The authors; Bhoomi Kuroop, is Associate, Rinkal Patel, is Consultant, and Asish Philip, is Partner, at the leading corporate law firm Lakshmikumaran & Sridharan (LKS). The views expressed are their personal.
First Published: Jun 7, 2024 9:09 AM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
