Sale of New EVs taxable at 5% GST, Used EVs between Individuals to Remain GST Exempt: FM Clarifies

The Union Finance Minister Nirmala Sitharaman, today (December 21, 2024) chaired the 55th iteration of the Goods and Services Tax (GST) Meeting convened at Jaisalmer, Rajasthan. The Minister clarified that new electric vehicles (EVs) shall attract a GST of 5% while the sale of used EVs between individual car owners shall remain exempt from GST.

The clarification comes amidst concerns raised by stakeholders in the EV sector on the levy of higher taxes on the sale of EVs by manufacturers and aftermarket sellers.

The outcome of the GST Council Meeting may be deemed a welcome one as the Finance Minister clarified that 5% GST may be applicable on the sale of new Electric Vehicles by manufacturers, while no GST is applicable on the sale of used EVs between individuals.

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Recognizing the significance of the EV resale market throughout the nation, it was clarified that a GST of 18% may still be applicable on the profit gained through the reselling of EVs by registered resellers. Such taxation has a direct impact on resellers who acquire the EVs from third parties and conduct value-additions by way of modifications, including change of battery, tires, software, upholstery, interiors and other components of the car.

By keeping sale transactions of EVs outside the ambit of GST ambit, the government hopes to maintain affordability in the second-hand market, making EVs accessible to a broader demographic in tandem with the Government’s policy to promote green mobility and reduce the carbon footprint.

However, the counter-argument towards green mobility is met with arguments citing the significant mining of rare earth materials such as lithium, cobalt and nickel leading to habitat destruction and pollution. Another key argument refers to the lack of waste disposal mechanisms to safely discard EV batteries.

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While industry experts have welcomed the move, highlighting its potential to stimulate both the primary and secondary EV markets, some have called for additional incentives such as tax breaks or subsidies, to further accelerate EV market-penetration in India.

This dual approach—taxing new EVs at a concessional rate while exempting used EVs in individual sales—reaffirms the government’s intent to maintain a cohesive balance between revenue generation and environmental sustainability. Fostering a more inclusive and competitive market for electric mobility solutions, one can hope for a greener and torque-efficient future.

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