As the cost of traditional motor vehicles and fuels continues to rise, many people are turning to electric vehicles (EVs) as a long-term alternative and mode of public transportation. EVs are efficient and environmentally friendly, not to mention cost-effective in the long run because they do not require any fuel. Many new and existing players have entered this market, including Ather Energy, Ola Electric, Hero Electric, Tata Motors, and others. The Delhi government recently directed e-commerce aggregators (such as Zomato, Swiggy, and Ola) to use EVs as their mode of transportation.
What are the services offered in the EV business?
EV companies typically include a portable charger with the vehicle, a performance upgrade (depending on the model), and regular servicing.
Furthermore, EVs and other electric companies have installed charging stations where their vehicles can be charged faster than with standard chargers. Following the sale of a vehicle, EV companies offer subscription plans for their application, which include EV health status, scheduled maintenance, and roadside and puncture assistance.
GST rate for EVs
To stimulate the electric vehicle market, the 36th GST Council meeting decided to reduce the GST rate on electric vehicles from 12% to 5% and chargers or charge stations from 18% to 5%.
The hiring of electric buses (with a seating capacity of more than 12 passengers) to local governments is GST-free. As a result, GST only applies to the sale of electric vehicles and any other services provided by the EV company. The infrastructure for EVs was also considered at the 36th GST Council meeting, and to make it more affordable, the GST Council lowered the rate on EV chargers/charging stations from 18% to 5%. The new rates will go into effect on August 1, 2019. At the moment, a 28% GST and a cess are levied on petrol and diesel-powered automobiles. The price of E.V. is too high, and the GST rates on these vehicles have been reduced to close the price gap between these two types of vehicles. However, the value of EVs is still expected to be substantial.
Effects on EV manufacturers
The reduction in GST on electric vehicles and related accessories will benefit both four-wheeler and two-wheeler companies. For a long time, manufacturers have been requesting a reduction in the GST rate on e-mobility. Automobile manufacturers such as Mahindra, Hyundai, BMW, and Tata are expected to profit greatly from increased sales of their e-vehicle models. Maruti-Suzuki will join them next year with the launch of its new e-vehicle. Hero Electric, Ather Energy, Revolt Intellicorp, Kinetic Green, Log 9 Materials, and 22Kymco will also see an increase in their EV sector.
In India, the annual sales of four-wheelers total 30 lakhs, with EVs accounting for only about 10-15,000. And, with the exception of Norway, the total contribution of EVs to total sales is around 1% at the global level. As a result, it is pressed for the time when E.V. adoption should be encouraged.
Availability of input tax credit to the EVs charging station as well as for those using EVs for business purposes
The primary function of EV charging stations is to recharge the batteries of electric vehicles. Charging batteries entails transferring power from the charging station to the batteries and may be regarded as the sale of electricity.
According to clarifications issued by the Ministry of Power regarding the issuance of a licence under the Electricity Act of 2003, charging EV batteries can be considered a service that does not involve the sale of electricity.
In addition, the Supreme Court stated that electricity is a movable item. The supply and consumption of electricity are recorded in meters installed by the electricity company as it reaches the customer. While there are no supply barriers during the electricity transfer.
Taking the above clarifications into account, charging EV batteries would be subject to GST. As a result, EV charging companies can take advantage of the input tax credit. Subject to goods and services used for commercial purposes and any purchases/expenses not falling under the GST negative list.
Taxpayers who use the services of EV charging stations can claim GST only if they use the electric vehicle for business purposes. As a result, if the vehicle is used for personal purposes, no GST can be claimed. If charging electric vehicles is considered a sale of electricity, the services provided will be GST-exempt. As a result, EV charging companies cannot claim any input tax credit. EV infrastructure is currently in the development stage, and many people charge their EVs at home or at work. Electricity supplied to our homes or offices is exempt from GST. As a result, the tax disparity grows when EVs are charged at home or at work rather than at EV charging stations. There is a misunderstanding, and multiple perspectives could be formed on the aforementioned issue. It is strongly advised that the CBIC issue clarifications on the taxability of EV charging stations and the availability of input tax credits as soon as possible.
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Frequently Asked Questions
Q1. What services are typically offered in the EV business?
A1. EV companies usually provide a portable charger with the vehicle, performance upgrades (depending on the model), and regular servicing. They also offer subscription plans for their applications, which include features like EV health status monitoring, scheduled maintenance, and roadside assistance.
Q2. What is the GST rate for EVs and charging stations?
A2. The GST rate on electric vehicles has been reduced from 12% to 5%, and on chargers or charging stations, it has been reduced from 18% to 5%. Additionally, hiring electric buses to local governments with a seating capacity of more than 12 passengers is GST-free.
Q3. How does the reduction in GST affect EV manufacturers?
A3. The reduction in GST rates is expected to benefit both four-wheeler and two-wheeler companies. Manufacturers like Mahindra, Hyundai, BMW, Tata, and others are anticipated to see increased sales of their EV models, potentially boosting the EV sector in India.
Q4. Is input tax credit available for EV charging stations?
A4. Charging EV batteries can be considered a service that does not involve the sale of electricity, according to clarifications issued by the Ministry of Power. EV charging companies can thus avail input tax credit, subject to goods and services used for commercial purposes.
Q5. Can taxpayers claim GST for using EV charging stations for business purposes?
A5. Taxpayers can claim GST only if they use the electric vehicle for business purposes when using the services of EV charging stations. If charging electric vehicles is considered a sale of electricity, the services provided may be GST-exempt, affecting input tax credit availability.
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