Electric vehicles with or without batteries will be taxed at 5%, clarifies finance ministry

The Union Ministry of Finance on Monday clarified that electric vehicles sold with or without batteries will be taxed at a single rate of 5 percent.

Back in June, during the 47th meeting of the GST Council chaired by Union Finance Minister Nirmala Sitharaman, the government had reduced the tax rate on lithium-ion batteries from 18 percent to 5 percent, which is the lowest tax band.

"Electric vehicles, whether or not fitted with a battery pack, are eligible for the concessional GST rate of 5 percent," a ministry statement read. Earlier in 2018, the government had reduced the GST on EV battery packs from 28 percent to 18 percent.

According to a study by Arthur D Little, EV adoption for passenger vehicles is likely to be just 10 percent by 2030, amounting to a strikingly small 5 percent of total EV sales.

The study titled 'Unlocking India's electric mobility potential' noted that to attain more than 30 percent EV adoption, India will require approximately 800 GWh of batteries by 2030.

To meet this rising demand, India is accelerating plans to manufacture Lithium-ion cells within the country, anticipating $2.3 billion in government subsidies and more than $7.5 billion in investment potential, it said.

In terms of investment, given the Foreign Direct Investment (FDI) inflow of nearly $6 billion in 2021, India's EV industry could attract further foreign investments of about $20 billion by 2030, to fuel the country's economic growth and help achieve the required scale in this industry, as per the study.