Industry Calls for Correction of Inverted Duty Structures to Accelerate Electrification of Electric Vehicles

Industry experts are urging the government to address the inverted duty structures affecting electric vehicle (EV) manufacturers. They also advocate for a distinct Goods and Services Tax (GST) advantage for EVs, including charging infrastructure and battery swapping services. Although EVs benefit from a 5% GST rate, recent changes in GST for internal combustion engine (ICE) vehicles have reduced the cost gap, making ICE vehicles more appealing.

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Navneet Daga, Co-founder and CEO of Zenergize, highlighted that while GST on EVs and chargers remains at 5%, essential components like power electronics and magnetic cores are taxed at 18%. This creates a cost imbalance for local manufacturers. He suggested aligning these GST rates and expanding government schemes like PM e-Drive to include charging infrastructure costs to boost India's EV market.

Challenges in the Current GST Structure

Deloitte India Partner Rajat Mahajan echoed these concerns, noting that the inverted duty structure poses challenges for EV makers. The 5% GST on electric vehicles contrasts with higher rates on key inputs, leading to input tax credit accumulation and working capital issues. Despite a reduction in tax rates on parts from 28% to 18% after September 22, 2025, disparities remain for critical inputs compared to finished goods.

Mahajan pointed out that the lack of refunds under the inverted duty structure for input tax credit related to capital goods adds to production costs. Given the capital-intensive nature of the EV industry, this is a significant issue. He emphasized the need for measures that create a supportive environment for EV manufacturing in India, aligning with government goals of promoting electrification and local production.

Policy Support for EV Adoption

Saurabh Agarwal, EY India Partner and Automotive Tax Leader, stressed the importance of balanced policy support to accelerate EV adoption. With ICE vehicles gaining traction under GST 2.0 amid global trade tensions, maintaining a clear GST advantage for EVs is crucial. This includes benefits for charging infrastructure, services, and battery swapping to ensure affordability and investment viability.

Agarwal also advocated for demand incentives under PM E-DRIVE to focus on segments where electrification has the most impact: public transport, shared mobility, commercial fleets, and last-mile delivery. Rapid adoption in these areas is vital to achieving a 30% EV penetration target by 2030.

Supply Side Considerations

On the supply side, Agarwal recommended continuing duty exemptions on critical battery inputs until domestic cell manufacturing under the Production Linked Incentive (PLI) scheme scales up. This is especially important given uncertain global tariffs. He also highlighted the need for robust state support through demand, supply, and R&D incentives to maintain EV affordability and foster innovation.

Overall, industry leaders agree that addressing these issues is essential for sustaining long-term momentum in EV adoption. By ensuring supportive policies and addressing cost imbalances, India can enhance its position in the global EV market while meeting its electrification goals.

With inputs from PTI