GST Applicability on Electric Vehicles

As India moves toward a cleaner and greener future, electric vehicles (EVs) are becoming central to the country’s transportation revolution. Beyond technological innovation and environmental benefits, one critical factor shaping this industry is the Goods and Services Tax (GST). The way GST is applied to EVs, their components, and supporting infrastructure significantly influences affordability, business strategies, and consumer adoption. In this article, we explore how GST impacts electric vehicles in India — and what it means for buyers, sellers, and the future of mobility.

How EVs Are Classified and Taxed Under GST Rules?

Under the GST framework, electrically operated vehicles (EVs) are defined as vehicles that run exclusively on electric power, without relying on traditional petrol or diesel engines. To encourage eco-friendly transportation, the government reduced the GST rate on EVs from 12% to just 5%, effective from August 1, 2019, through Notification No. 12/2019 – Central Tax (Rate). This concessional rate applies across all categories, electric two-wheelers, three-wheelers, cars, and even buses.

This move not only makes EVs more affordable for consumers but also reflects India’s strong commitment to build a greener and cleaner mobility ecosystem.

GST Applicability on Electric Vehicles

Both consumers and industry stakeholders must understand the Goods and Services Tax (GST) rates for electric vehicles (EVs). Let’s look at the details below:

• Current GST Rate on New Electrically Operated Vehicles

As of the latest updates, new electric vehicles in India attract a GST rate of 5%. This rate was reduced from the previous 12% to encourage the adoption of eco-friendly transportation options.

• Comparison with GST Rates on Conventional Internal Combustion Engine Vehicles

In contrast, conventional internal combustion engine (ICE) vehicles are subject to higher GST rates. Typically, these vehicles fall under the 28% GST slab, with an additional compensation cess that can range from 1% to 22%, which depends on factors like engine capacity and vehicle type. This means the effective tax rate on ICE vehicles can go up to 50%.

• Specific GST Rates for Different Categories of EVs

The 5% GST rate is uniformly applied across various categories of electric vehicles, this includes:

1. Two-wheelers: Electric scooters and bikes.
2. Three-wheelers: Electric rickshaws and similar vehicles.
3. Four-wheelers: Electric cars.
4. Buses: Electric buses used for public transportation.

GST on Electric Vehicles in India (2025)

This uniform tax rate simplifies the taxation process and supports the government's initiative to promote electric mobility across all vehicle segments.

It is important to note that while the GST rate on EVs is concessional, components like lithium-ion batteries and charging infrastructure may attract different GST rates. For instance, EV chargers and charging stations are taxed at 5%, aligning with the rate for electric vehicles.

You have to understand these tax structures which can aid in making informed decisions, whether you are a consumer considering an EV purchase or a business involved in the EV market.

GST on EV Chargers and Charging Stations

With the rise of electric mobility, the development of a reliable and affordable charging infrastructure has become a key priority and GST reforms play a vital role in making that possible.

• GST rates applicable to EV chargers and charging stations

As of August 1, 2019, the Goods and Services Tax (GST) on electric vehicle (EV) chargers and charging stations in India has been reduced from 18% to 5%. This move aims to make EV charging infrastructure more affordable and to encourage the adoption of electric mobility across the country.

• Impact of these rates on the development of charging infrastructure

The reduction in GST rates has positively influenced the growth of EV charging infrastructure by lowering the overall cost of setting up charging stations. This financial incentive has attracted more investments into the sector, which leads to an increase in the number of charging stations and supports the government's vision of a sustainable transportation ecosystem.

GST on Used Electric Vehicles

Both businesses and individuals involved in their sales must understand the Goods and Services Tax (GST) implications for used electric vehicles (EVs). Here is a comprehensive overview:

GST on Used EV Sales by Businesses

As of December 2024, the GST Council has standardized the tax rate for the sale of all old and used vehicles, including EVs, at 18%. This rate applies specifically to registered businesses that are engaged in buying and selling used vehicles. The tax is calculated on the margin, which is the difference between the purchase price and the selling price of the vehicle. If the margin is negative, GST does not apply.

GST on Margin Value in Resale Deals

For businesses, GST is levied on the margin value. The difference between the selling price and the purchase price of the used EV. If a vehicle is purchased for Rs 500,000 and sold for Rs 550,000, GST at 18% applies to the Rs 50,000 margin. This approach ensures that tax is paid only on the value added by the seller.

GST on Personal Sales of Used EVs

In transactions where an individual sells a used EV to another individual, GST is not applicable. The tax obligations pertain only to registered businesses dealing in used vehicles. This exemption simplifies the process for private sales, encouraging the resale market among consumers.

If you understand these distinctions it helps ensure compliance with tax regulations and facilitates smoother transactions in the used EV market.

Government Initiatives and Incentives

Overview of government schemes promoting EV adoption (e.g., FAME India Scheme) is as follows.

The Government of India has launched the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) India Scheme to encourage the use of electric vehicles. Phase II of this scheme, implemented from April 1, 2019, with a budget of Rs 10,000 crore, focuses on supporting the electrification of public and shared transportation. It aims to provide demand incentives for 7,090 electric buses, 5 lakh electric three-wheelers, 55,000 electric four-wheeler passenger cars, and 10 lakh electric two-wheelers.

Extra Tax Benefits for EV Buyers

To further promote electric vehicle adoption, the government offers several tax benefits:

• Income Tax Deduction: Tax Benefit: As per Section 80EEB of the Income Tax Act, individuals can claim up to Rs 1.5 lakh as a deduction on interest paid for EV loans sanctioned from April 1, 2019, to March 31, 2023.
• GST Reduction: The Goods and Services Tax (GST) on electric vehicles has been reduced from 12% to 5%, making EVs more affordable for consumers.
• Road Tax and Registration Fee Exemptions: Several states offer exemptions or reductions in road tax and registration fees for electric vehicles, further lowering the cost of ownership.

These initiatives collectively aim to reduce the upfront cost of electric vehicles and encourage their widespread adoption across the country.

Impact of GST on EV Adoption

The Goods and Services Tax (GST) has become a key driver in shaping India’s electric vehicle (EV) ecosystem. By lowering tax rates and reducing costs, GST plays a major role in encouraging consumers to make the shift from traditional fuel vehicles to cleaner alternatives.

How GST affects Consumer Choices and Market Trends

The current GST rate for electric vehicles in India is set at 5%, significantly lower than the 28% GST (Plus CESS) applied to conventional petrol and diesel vehicles. This lower tax rate reduces the overall cost of purchasing an EV, which makes it a more attractive option for budget-conscious buyers. As a result, more consumers are now showing interest in EVs, which is helping to shift the market towards greener transportation. The GST reduction also supports the government’s push toward a clean energy future.

GST's role in EV affordability and adoption

The reduced GST rate has played a crucial role in improving the affordability of electric vehicles. It directly lowers the purchase price, which in turn helps buyers consider EVs as a practical alternative to traditional fuel vehicles. This price advantage, combined with state and central subsidies, has increased demand and encouraged manufacturers to expand their EV offerings. As EVs become more accessible, the country moves closer to its goal of sustainable and environment-friendly mobility.

Challenges and Considerations

The growth of electric vehicles (EVs) in India has been supported by favorable GST policies. However, some challenges still exist in the current framework that can slow down progress and create confusion for businesses and buyers.

GST Challenges for EVs and Infrastructure

One of the main concerns is the difference in GST rates applied to different parts of the EV ecosystem. While electric vehicles and chargers attract a reduced GST of 5%, batteries sold separately still attract 18% GST. This inconsistency creates confusion and adds cost for buyers who may need to replace or purchase batteries independently. Another issue is that input tax credit (ITC) is not always fully available for charging station operators, which affects their profitability and slows down investment in EV infrastructure.

Policy Improvement Areas for EV support

Experts suggest bringing all the key EV components, including batteries, under the 5% GST rate. There is also a call for clearer policies on ITC availability and simplified compliance processes for small EV businesses. Better clarity and uniformity in GST treatment across the entire EV value chain can encourage more companies and consumers to adopt electric mobility.

Conclusion

In this article, you’ve learned how GST is applicable for electrically operated vehicles in India. As the nation accelerates toward sustainable transportation, a supportive GST framework plays a vital role in making EVs more accessible and affordable. Whether you're a buyer, manufacturer, or entrepreneur in the EV sector, staying compliant with the latest tax regulations is essential for long-term growth and success.

At Online Legal India, we simplify your journey with expert assistance in Company Registration, GST Filing, and other regulatory applications. Our experienced professionals ensure accurate documentation and consistent compliance — so you can focus on driving your business forward.

Visit Online Legal India today to get assisted.