Mint Explainer: Why auto industry is divided on tax breaks for hybrid vehicles
Tata Motors, Mahindra, and Hyundai argue against any preferential tax treatment for these vehicles. These companies account for over 85% of the Indian car market, effectively making this an industry-wide discord. Both the camps have lobbied with various government departments and ministries, including the Prime Minister’s Office.
Hybrid cars integrate power from a conventional internal combustion engine with an electric motor, enhancing fuel efficiency of the vehicle, and reducing emissions and fuel consumption. However, these vehicles cost more than comparable combustion engine vehicles as they have several additional parts, including motor, battery, and associated electronics. Proponents of hybrids argue that tax reductions would narrow the price gap with conventional cars, thereby increasing consumer adoption.
They believe this shift would assist the government in achieving lower emission goals and decrease the country’s oil import bill. Mint explains what the issue is all about. In India, hybrid cars are taxed at the highest GST rate of 28%.
This is the same as a conventional combustion engine vehicle. Cars also attract an additional cess of 1-22% on top of GST, depending on their size, fuel type and engine capacity. Here, hybrid cars attract a lower cess by 1-7 percentage points depending on the car type.
The following table contains the effective tax rate for different type of cars. It ranges from 29% to 50%. Electric vehicles attract a preferential GST rate of 5% with no additional cess.
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