Why There Needs To Be A GST Parity For EV Batteries

Pulkit Khurana Dec 07, 2022

Over the past few years, nations across the world have been strengthening their focus on clean technology and working on reducing emissions through government policies, investments, and more. In India, it’s heartening to see electrification increasingly being embraced by consumers - with innovative green energy solutions being brought into the spotlight every day and established EV manufacturers leading the way in the battery technology space. While countries like the US have established their preferences for fixed-battery vehicles, especially in the four-wheeler segment, our country's EV adoption story is a unique one, specifically for the two-and-three-wheeler market, which is largely public and shared.

Battery swapping for India’s two and three-wheelers has immense potential to spur the EV revolution. The reasons are twofold. Firstly, India overtook China in 2016 to become the world’s biggest two-wheeler market while also establishing itself as a hub for three-wheeler manufacturing and sales. Secondly, with a growing population, space constraints, and immense value for time, the Indian market needs a cost-efficient solution like battery swapping, which allows users to swap new batteries into their vehicles in less than two minutes. It also combats major deterrents to EV adoption like long charging time, unreliable battery life, range anxiety, and high-up front costs, especially for commercial vehicles that are required to be constantly on the move to maximise their running time and hence productivity.

For EVs to continue revolutionising the mobility sector, there needs to be robust support from policymakers and key decision-makers. In line with this, it’s encouraging to see many impactful policies come into play over the past few years. For example, increased conversations around interoperability and standardisation, as well as a larger focus on battery safety and quality through new AIS standards that are being implemented in two phases are great moves. However, one important aspect that requires increased focus and immediate corrective measures, is the GST on batteries. In 2018, the Government reduced the GST on EV battery packs from 28 per cent to 18 per cent. In the following year, during the 36th GST Council meeting, the GST on all EVs was reduced from 12 per cent to 5 per cent, while the GST on batteries remained unchanged at 18 per cent. Lowering the rate to 5 per cent will be a beneficial move as it allows manufacturers to bring their once-premium EV offerings in line with their Internal Combustion Engine competition. It will also reduce the cost of owning an electric vehicle and will go a long way in bringing more EVs onto the roads.

As per NITI Aayog’s Battery Swapping Policy, drafted in April 2022, the tax rates on Lithium-ion batteries and Electric Vehicle Supply Equipment (EVSE) currently stand at 18 per cent and 5 per cent respectively. This higher GST levy on EV batteries sold independently is resulting in higher battery costs, which restrict the growth and expansion of battery swapping infrastructure in the country. In June 2022, a meeting amongst the NITI Aayog, Ministry of New and Renewable Energy, and Heavy Industries highlighted possible plans for tax rationalisation on lithium-ion batteries. As lowering taxes is incredibly beneficial to the future of electric mobility, it’s important for the GST on swappable Lithium-ion batteries to be reduced to 5 per cent as well. Equalising the tax rates will incentivise producers to drop their costs – leading to increased affordability, more flexibility, and large-scale EV adoption. In fact, these changes can bring a 10-12 per cent reduction in pricing, and with the introduction of subsidies, we will see an additional 15-18 per cent price reduction as well.

At the COP27, India shared a strategic roadmap to help fight climate change, which included reducing emissions at a household level. Here’s where EVs come into play as a large percentage of household emissions arise from ICE vehicles. Making EVs more affordable, accessible and hence more widespread will play an important role in achieving our goal of net zero emissions by 2070. Additionally, we will see a stronger focus on product research, development, and investment, which is crucial to make efficient solutions like battery swapping more mainstream. It will also help promote our battery recycling market as reusing batteries contributes immensely to the much-needed fight against global warming. By lowering the taxes, and therefore the sales prices, of Li-Ion batteries, India can look forward to more innovation, with a product-focused approach rather than a price-focused one.