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A tax panel has proposed steep hikes in GST on luxury electric cars priced more than $46,000 (about ₹40 lakh), a government document showed, in what can be a setback for the likes of Tesla Inc. of the US to BYD of China.
A Tesla Model Y on display at company’s showroom in BKC Mumbai.(Bloomberg)
The group of ministers, tasked with making recommendations to the GST Council for upcoming rationalisation, has suggested increasing GST to 18% for electric cars priced between ₹20 lakh and ₹40 lakh and 28% for those costing more. The rationale: such vehicles cater to the “upper segment” of society and are largely imported rather than manufactured locally.
The GST Council, headed by Union Finance Minister Nirmala Sitharaman, will meet on 3-4 September to decide on rationalising the indirect tax on up to 175 goods and services, in the biggest tax overhaul since 2017.
Prime Minister Narendra Modi, during his Independence Day speech on 15 August, announced sweeping GST reforms to spur an economy hit by 50% US tariffs.
To be sure, the government has decided to do away with the 28% tax rate altogether, leaving the GST Council with the option to increase GST on EVs to 18%, or put them in a new 40% tax bracket, Reuters reported citing people familiar with the matter.
The secretariat of the GST Council did not respond to Reuters queries.
After the Reuters story, the Nifty Auto index turned negative and fell as much as 0.5%, with local automakers Mahindra & Mahindra Ltd. falling almost 3% and Tata Motors Ltd. dropping 1.2%.
EV market In India
India’s EV market is small, making up about 5% of total cars sold in April to July this year, but growth in the segment has been rapid: electric car sales in India rose 93% to 15,500 units during that period.
“The uptake of electric vehicles is increasing and while the low rate of 5% is to incentivise faster adoption of electric vehicles, it is also important to signal that higher-priced EVs can be taxed at higher rates,” according to the panel.
The proposal could affect Mahindra and Tata Motors, as well as Tesla, BYD, Mercedes-Benz and BMW that offer top-end luxury electric cars.
Tata Motors leads India’s electric car market with a near 40% market share, while Mahindra has 18%. BYD holds a 3% market share, while Mercedes-Benz and BMW together account for 2%. Tesla is taking bookings but has yet to start deliveries.
Tesla has opened two showrooms in India in recent months, years after Elon Musk repeatedly criticised high tariffs of roughly 100% on imported cars. GST is applied on top of these tariffs, further increasing costs of Tesla cars.
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