Centre may soon cut tax on hybrid cars to 35 percent

Centre may soon cut tax on hybrid cars to 35 percent

New Delhi, Dec 14: Making its intent clearer towards pushing hybrid cars in India, the government may soon push for a lower goods and services tax (GST) cess of 25 percent on “strong” hybrid cars, taking effective tax rate to 35 percent, sources said.
“The road transport ministry has proposed for a GST rate of 35 percent on strong hybrid cars, down from 43 percent,” a source in the know said.
According to the minutes of the meeting, the government envisions to develop a “positive environment” for EVs for which a multi-pronged approach will be adopted, including pushing down the tax rate.
“The GST rate on EVs have 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 the CO2 emissions … They can be extended some GST benefits of say, 25 percent, as compared to ICE vehicles,” the note from the meeting said.
Thus, the government intends to cut cess on hybrid cars and levy one-fourth cess of the GST. Effectively, a customer will have to pay 35 percent of the base price as tax.
At present, hybrid cars are taxed at 43 percent (including cess) as compared to electric cars that are taxed at 12 percent. Incumbent ICE vehicles also put under the 43 percent tax bracket. The tax was seen as a big deterrent in the field of hybrid cars, which were being taxed at 30.3 percent before GST was being implemented.
When the GST regime kicked-in from July 1, a uniform rate of GST was prescribed at 43 percent for specified sedans and SUVs. This was relatively lower than the effective rate range from 46.6 percent to 55.3 percent during the previous tax system .
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. Similarly, cess on large cars was hiked by 5 percent, taking the total GST incidence to 48 percent while that of SUVs by 7 percent to 50 percent.
It must be noted that only strong hybrid cars will be taxed at lower GST rate whereas mild hybrids will continue to attract higher rate.
There are three categories of battery based vehicles namely hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and battery electric vehicle (BEV). While BEVs are operated only by battery, PHEV and HEV use combination of battery and ICE.
“The road ministry has proposed to reduce tax on PHEVs,” the source said.
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.