Overview
- GST Retention Win: GST Council retains 5% concessional rate on all EVs, ensuring price stability, but charging and battery services at 18% inflate ownership costs.
- Ecosystem Focus: Rationalizing GST on batteries, charging, and financing to 5% could lower lifetime costs, making EVs viable in Tier II and III cities.
- Financing Barriers: High interest rates and short loan tenures deter buyers; lower GST on loan fees and leasing could enable affordable EMIs and longer terms.
- EV Penetration Push: Tier II and III cities, driven by fuel efficiency needs, are key growth markets, with EVs projected to hit 6% penetration by 2025-end.
- State Incentives: Road tax waivers, FAME-II, and PM E-Drive’s ₹2,000 crore for chargers must extend to smaller towns for broader adoption.
- Expert Insights: Nehal Gupta, Founder of Accelerated Money For U, emphasizes harmonizing taxes and financing to make EVs aspirational yet affordable.
- Market Outlook: India’s EV market, part of a global $2 trillion sector by 2033, hinges on grassroots affordability for mass appeal.
GST Rationalisation: The Key to Affordable EVs in India’s Heartland
As electric vehicles (EVs) gain momentum beyond India’s metros, Tier II and III cities are emerging as the next frontier for clean mobility. Fuel efficiency and low maintenance make EVs attractive, but high upfront costs remain a hurdle for middle-income buyers. The GST Council’s decision to retain a 5% tax rate on EVs offers relief, yet experts like Nehal Gupta, Founder and MD of Accelerated Money For U, argue that broader rationalisation—covering batteries, charging, and financing—is critical to drive adoption in smaller cities and unlock India’s $2 trillion EV market potential by 2033.
Retaining 5% GST: A Step Forward, Not Enough
The GST Council’s recent move to maintain a 5% rate across all EV categories—avoiding hikes to 18% for premium models—ensures price stability. “This retention is a relief, but it doesn’t address recurring costs like charging and battery-swapping, taxed at 18%,” Gupta notes. These expenses hit harder in Tier II and III cities, where buyers prioritize long-term affordability. Harmonizing GST on these services to 5% could cut monthly costs by 10–15%, making EVs competitive with ICE vehicles.
Holistic Ecosystem Rationalisation
Affordability extends beyond purchase price. “Rationalising the entire EV ecosystem—batteries, charging, maintenance, and services—lowers lifetime ownership costs,” Gupta explains. For instance, aligning replacement batteries (30–40% of EV cost) and charging infrastructure to a 5% GST rate would reduce expenses significantly. In smaller cities, where predictable costs are key, this could boost adoption among budget-conscious buyers, including public transport operators hesitant to switch to cleaner options.
Financing: The Missing Link
In Tier II and III cities, over 70% of vehicle purchases rely on loans, yet EV financing faces challenges: higher interest rates (10–12% vs. 8–9% for ICE), shorter tenures, and larger down payments due to battery depreciation fears. “Lowering GST on loan processing fees, leasing, and insurance to 5% could enable lenders to offer competitive rates and longer terms,” Gupta suggests. Flexible models like leasing or subscriptions, paired with tax breaks, could cut EMIs by 20%, making EVs accessible to first-time buyers in semi-urban areas.
Local Incentives Amplify Impact
State-level benefits like road tax exemptions and FAME-II subsidies exist but are underutilized in non-metro markets. “Dealers must communicate these perks effectively,” Gupta urges. The PM E-Drive scheme’s ₹2,000 crore for 72,000 public chargers, including in smaller towns, complements GST reforms. States like Tamil Nadu and Gujarat, with EV-friendly policies, show how localized incentives can drive uptake—models that smaller cities must replicate to bridge awareness gaps.
India’s EV Growth Trajectory
India’s EV penetration hit 6% in August 2025, up from 2.4% last year, with Tier II and III cities contributing 30% of sales due to fuel cost concerns. The global EV market is projected to exceed $2 trillion by 2033, and India’s affordability-driven growth is pivotal. “GST rationalisation, paired with financing and infrastructure, can make EVs not just sustainable but economically feasible for millions,” Gupta emphasizes.
By aligning tax policies with grassroots needs, India can transform Tier II and III cities into EV strongholds, driving clean mobility and economic empowerment.
Source: www.goodreturns.in/
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