GST Council Likely To Hike Tax on Old and Used Vehicles, Including EVs, to 18%

The GST Council's Fitment Committee has proposed increasing the Goods and Services Tax (GST) rate on old and used electric vehicles (EVs) from the current 12% to 18%. If implemented, this change would place second-hand EVs in the same tax bracket as larger conventional vehicles like SUVs.

Current GST Structure for Vehicles

At present, old and used vehicles are taxed based on the supplier's margin, resulting in relatively low effective taxation. The GST rates currently vary by vehicle type:

18% for petrol, LPG, or CNG vehicles with engine capacities of 1200cc or more and lengths of 4000mm or more.

18% for diesel vehicles with engine capacities of 1500cc or more and lengths of 4000mm or more.

18% for SUVs with engine capacities exceeding 1500cc.

12% for all other vehicles, including electric vehicles.

Impact on the EV Market

While new EVs enjoy a concessional 5% GST rate to encourage adoption, used EVs currently fall under the “all other vehicles” category, attracting a 12% GST. Raising this rate to 18% would align second-hand EVs with larger petrol, diesel, and CNG vehicles, effectively increasing their purchase cost.This proposed hike comes at a time when the used EV market is still in its growth phase. The current 12% GST serves as an incentive for cost-conscious buyers looking for affordable and eco-friendly transportation. Increasing the tax to 18% could reduce demand by making second-hand EVs less attractive due to higher costs.

Additional Financial Strain

The used car market already faces high operational costs, as input parts and services for vehicle repair and maintenance attract an 18% GST. Adding the same rate to the sale of used EVs could intensify the financial burden on both sellers and buyers, potentially slowing market growth.

Industry Concerns

While the committee aims to create uniformity in vehicle taxation, industry experts argue that EVs are a growing sector requiring continued policy support. A tax increase at this stage could hinder the widespread adoption of used EVs, impacting the sector’s expansion and environmental sustainability goals.