In India, the goods and services tax (GST) rates for hybrid vehicles are higher compared to electric vehicles (EVs) and here is why it is so.
This policy reflects the government’s strategy to promote greener technology and reduce pollution. The rate of GST for EVs is 5 per cent and it is 28 per cent for hybrid vehicles.
Let us explore the logic behind this decision and its broader implications.
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| Hybrid cars like Maruti Grand Vitara also run on petrol/gasoline and hence they contribute to pollution. |
Why higher GST for hybrids?
Environmental goals: The primary reason for imposing higher GST on hybrid vehicles is to encourage a shift towards fully EVs.
Hybrids, which combine an internal combustion engine (ICE) with an electric motor, rely on fossil fuels also. While they are more fuel efficient than conventional vehicles, they do not eliminate emissions entirely.
In contrast, EVs produce zero tailpipe emissions, aligning with India’s environmental goals to combat air pollution and reduce carbon footprints.
Government incentives for EVs: The Indian government is keen on promoting EVs via various incentives and subsidies.
EVs benefit from reduced GST rates, making them more attractive to consumers compared to any other type of vehicle.
This support is part of a broader strategy under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, which aims to accelerate the growth of electric mobility in the country.
Long-term cost efficiency: Although EVs often come with a higher initial cost, they offer long-term savings through lower running costs.
Electric vehicles have fewer moving parts compared to hybrids and ICE vehicles, leading to reduced maintenance costs.
Lower GST on EVs helps offset the initial expense, making them a more economical choice over a medium-to-long term.
Energy efficiency: EVs are more energy-efficient than hybrids because they use electricity directly rather than relying on a combination of petrol or diesel and electricity.
By setting lower GST rates for EVs, the government aims to support energy efficiency and reduce dependency on fossil fuels.
Impact of higher GST on hybrids
Consumer choices: Higher GST rates on hybrids may make them less attractive to consumers compared to EVs. This may push more people to consider EVs, which aligns with government policies for a cleaner environment.
However, hybrids still play a crucial role for those who are not yet ready to switch to pure EVs due to range anxiety or lack of charging infrastructure. Hybrids are for a transition phase.
Market dynamics: The higher tax on hybrids could affect the market dynamics and slow down adoption of hybrid technology. Manufacturers may need to reassess their strategies and focus more on developing EVs.
Transition challenges: For some consumers, hybrids represent a transitional technology towards full electrification.
By imposing higher GST on hybrids, the government may inadvertently discourage those who seek a gradual shift from traditional vehicles to fully electric ones.
Heavy industries minister HD Kumaraswamy recently said the government is expected to finalise the third phase of its flagship electric mobility adoption scheme in a month or two.
On the other hand, Nitin Gadkari, minister for transport and highways, said that subsidies for EVs may no longer be necessary for consumers.
“My belief is now we don’t need too many subsidies. GST on petrol and diesel vehicles is 28 per cent, while the GST on an electric vehicle is only 5 per cent. After getting 5 per cent GST, we don't need subsidies,” Gadkari said.
E-Vroooom’s views
India’s GST policy reflects a strategic push towards promoting fully electric vehicles and achieving environmental sustainability goals rather than considering the interim hybrids, and that is probably the reason why GST on hybrid vehicles is higher in India compared to EVs.
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