Time to invest more in Green India

A balance would need to be struck, which will not only catalyze a home-grown EV ecosystem but also lead the way for sustained growth and development.

Photo by CHUTTERSNAP on Unsplash
Photo by CHUTTERSNAP on Unsplash

Mass adoption of electric vehicles (EVs) is anticipated in the years ahead, driven primarily by policy incentives, rising incomes, and technological advancements. It is pertinent to note that even though India does not have a first-mover advantage in the EV segment, it is also not the last one in the race. Furthermore, there is a huge potential in EV which is still untapped.

As per the recent report, by 2030, the share of the EV is expected to be 80% due to the government push towards electric mobility. To achieve, it has been proposed that two-wheelers below the engine capacity of 150cc sold in the country after March 31, 2025, and three-wheelers sold after March 31, 2023, should be EVs.

The government has been trying to invest in this sector by bringing in initiatives such as the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles in India (FAME India) Scheme for promotion of adoption of electric/hybrid vehicles in India since 01st April 2015.

Currently, Phase II of the FAME India Scheme is being implemented for a period of 3 years from 01st April 2019 with total budgetary support of Rs. 10,000 crores. Under this scheme, the DHI aims to support through demand incentives. The scheme also provides for the setting up of charging stations. This Capital support is surely providing an impetuous incentive to the industry to scale up production with improved technologies.

On the tax front, the GST rate on EV has reduced from 12% to 5% as opposed to traditional vehicles, wherein, the GST rate is 28% plus cess. It is imperative to know that such a lower rate of tax is available only on exclusive EVs and not on hybrid vehicles. However, a lot of uncertainties around the taxation structure, especially in the area of GST in case of supply of hybrid models, battery distribution etc continues to be an open pandora box.

There are some key issues from tax perspective which are worth consideration by the government to promote EV and helps in achieving the desired goals. One such issue is clarifying the applicable GST rate on the swapping of batteries at the charging station. This, in turn, is likely to cause a debate whether the said services will constitute a supply of goods as a barter arrangement or charging services for the purpose of taxability under the GST legislation. Another such issue is, soaring GST rates for battery waste i.e. 18% adds to the suffering of the recycling industry.

Way forward

A clarification or amendment if introduced by the government on the aforesaid key business issues is likely to help the EV sector.

Currently, the sector being on focus, the government has introduced a PLI scheme for Advanced Chemistry Cell (ACC) battery storage with an outlay of INR 18,100 crores. Further, to boost the demand of EV, green growth and to make Bharat atmanirbhar, the GoI along with other consumer incentives should also focus on coming up with a Policy scheme such as Production Linked Incentives (PLI), exclusively introduced for EVs. Further, to reduce dependency on the import of Lithium batteries, it is required that a proper infrastructure should be developed for re-use or recycling batteries, contributing as an import substitute.

Thus, a balance would need to be struck, which will not only catalyze a home-grown EV ecosystem but also lead the way for sustained growth and development.

The blog has been authored by Riddhima Mehta, Indirect Tax Expert & Manager at a Big 4 firm.

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