Ahead of the Union Budget, electric vehicle (EV) industry stakeholders have urged the government to correct the inverted duty structure (IDS) and preserve a clear GST advantage for EVs. Industry players say rationalising GST across vehicles, components, and charging infrastructure is essential to speed up India’s transition to electric mobility.
GST Changes Narrowing EV Cost Advantage
Electric vehicles currently attract 5% GST, including EV chargers. However, following recent changes under GST 2.0, GST rates for certain internal combustion engine (ICE) vehicle segments have been revised, narrowing the price gap between EVs and ICE vehicles.
Industry experts note that this has reduced the total cost of ownership advantage that EVs previously enjoyed, making ICE vehicles relatively more attractive for some buyers.
Inverted Duty Structure Raises Costs for EV Makers
While finished EVs are taxed at 5%, several critical EV components, including power electronics, magnetic cores, and other key inputs, continue to attract 18% GST. This has resulted in an inverted duty structure, increasing costs for domestic EV manufacturers.
“GST on EVs and chargers remains at 5%, but most essential components are taxed at significantly higher rates, creating a clear cost imbalance,” an industry expert said.
ITC Accumulation and Working Capital Strain
Tax experts pointed out that the inverted duty structure leads to the accumulation of input tax credit (ITC), causing working capital pressure. They also highlighted that refunds of ITC attributable to capital goods are not permitted under IDS, adding to production costs in the capital-intensive EV manufacturing sector.
GST Overhaul Offers Only Partial Relief
After the GST rate overhaul on September 22, 2025, the tax rate on auto parts and components was reduced from 28% to 18%, providing some relief. However, experts said the core issue remains unresolved, as critical inputs are still taxed at rates higher than the finished EVs.
Industry Seeks Broader Policy Support
EV manufacturers have called for alignment of GST rates across the EV value chain and expansion of government schemes such as PM E-DRIVE to include charging infrastructure and associated costs. According to industry voices, such steps would significantly strengthen India’s EV ecosystem.
“Given the government’s stated objective of promoting electrification and domestic manufacturing, policy measures should focus on creating a more supportive environment for EV makers,” a tax expert said.
Need to Protect EVs’ GST Advantage
Another industry expert stressed that accelerating EV adoption—especially when ICE vehicles are regaining momentum under GST 2.0 and global trade uncertainties persist—requires consistent and balanced policy support.
“It is important to protect a clear GST advantage for EVs, including charging infrastructure, charging services, and battery swapping, to keep EVs affordable and investments viable,” he said.
Focus on High-Impact Segments Under PM E-DRIVE
Experts also emphasised that demand incentives under PM E-DRIVE should remain focused on segments where electrification delivers the greatest impact, such as:
- Public transport
- Shared mobility
- Commercial fleets
- Last-mile delivery
Faster adoption in these segments is considered crucial to achieving the government’s target of 30% EV penetration by 2030.
Support Needed for Domestic Supply Chains
On the supply side, industry stakeholders have urged the continuation of duty exemptions on critical battery inputs until domestic cell manufacturing under the PLI scheme reaches scale, particularly amid global trade and tariff uncertainties.
They also called for strong state-level support through demand incentives, supply-side measures, and R&D funding to sustain EV affordability, innovation, and long-term adoption.
Source: ET