Hybrid Cars May Get a Budget Boost: Cess Cut Proposal Under Consideration

The Indian government is considering a proposal to reduce the tax burden on hybrid electric vehicles (HEVs), which could lead to a significant boost in their sales. According to sources, the Ministry of Heavy Industries has suggested removing the 15 percent cess currently imposed on top of the 28 percent Goods and Services Tax (GST) on HEVs. This move is expected to reduce the tax differential between hybrids and electric cars, making them more attractive to prospective buyers.

Prior to 2018, hybrids were treated similarly to electric vehicles and were eligible for incentives. However, in 2018, the government differentiated between the two categories by removing tax benefits from hybrid vehicles, resulting in a total tax rate of 43 percent (28 percent GST plus 15 percent cess). In contrast, the GST Council has reduced rates on electric vehicles from 12 percent to five percent. This change led to a significant gap in the tax rates between the two categories.

The proposal to remove the cess charged on hybrid cars is still under consideration, and a final decision has not been made yet. The Ministries of Finance and Heavy Industries did not respond to emailed queries by the time of publication.

Experts believe that this move will have a positive impact on both hybrids and electric vehicles. “The penetration of HEVs is coming very close to EVs. Manufacturers of hybrid vehicles have been advocating for benefits, claiming that hybrids are a greener solution compared to pure Internal Combustion Engine Vehicles (ICEVs),” says Ravi Bhatia, MD of JATO Dynamics India. According to Bhatia, the average cost of a luxury hybrid vehicle will decrease by Rs 27 lakh, and for mass-market players, prices will drop by Rs 2 lakh.

The sales data of hybrid cars also supports this claim. During the first quarter of financial year 2024-25 (April 24-June 24), 23,200 units of hybrid cars were sold, with a penetration level of 2.3 percent. This is an increase from the 14,400 units sold during the same period last year. For the entire calendar year 2023, 996,614 hybrid cars were sold, representing 1.4 percent of the total passenger vehicle market.

The removal of cess on hybrid cars is expected to push EV manufacturers to offer better value products to customers and provide a boost to hybrids. This move will also coincide with the Uttar Pradesh government’s recent announcement of a road tax waiver for hybrid cars. Overall, the proposal to reduce taxes on hybrid cars has the potential to significantly boost their sales and make them a more attractive option for car buyers.

Key Points:

• The Indian government is considering a proposal to reduce the tax burden on hybrid electric vehicles (HEVs).
• The proposal aims to remove the 15 percent cess currently imposed on top of the 28 percent GST on HEVs.
• The move is expected to reduce the tax differential between hybrids and electric cars.
• Experts believe that this move will have a positive impact on both hybrids and electric vehicles.
• The sales data of hybrid cars shows an increase in sales during the first quarter of financial year 2024-25.
• The proposal is still under consideration, and a final decision has not been made yet.

Historical Context:

In 2018, the Indian government made a significant change in its taxation policy for hybrid electric vehicles (HEVs) and electric vehicles (EVs). Prior to this, both HEVs and EVs were treated similarly and were eligible for incentives. However, in 2018, the government differentiated between the two categories by removing tax benefits from hybrid vehicles, resulting in a total tax rate of 43 percent (28 percent GST plus 15 percent cess) for HEVs. In contrast, the GST Council reduced rates on electric vehicles from 12 percent to five percent. This change led to a significant gap in the tax rates between the two categories.

The Indian government’s decision to remove tax benefits from HEVs was likely motivated by the desire to promote the adoption of electric vehicles, which are considered a more environmentally friendly option. However, this move had the unintended consequence of making HEVs less attractive to consumers, leading to a decline in their sales.

In recent years, there has been a growing trend towards the adoption of hybrid electric vehicles, particularly in the luxury segment. This is due to their ability to offer better fuel efficiency and lower emissions compared to traditional internal combustion engine vehicles (ICEVs). As a result, manufacturers of hybrid vehicles have been advocating for benefits, claiming that hybrids are a greener solution compared to pure ICEVs.

The proposal to remove the cess on hybrid cars is a significant development in the Indian automotive industry. If implemented, it could lead to a significant boost in the sales of hybrid cars and make them a more attractive option for car buyers.

Summary in Bullet Points:

• The Indian government is considering a proposal to reduce the tax burden on hybrid electric vehicles (HEVs) by removing the 15 percent cess currently imposed on top of the 28 percent GST. • The move aims to reduce the tax differential between hybrids and electric cars, making them more attractive to prospective buyers. • Experts believe that this move will have a positive impact on both hybrids and electric vehicles. • The sales data of hybrid cars shows an increase in sales during the first quarter of financial year 2024-25, with 23,200 units sold and a penetration level of 2.3 percent. • The proposal is still under consideration, and a final decision has not been made yet. • The removal of cess on hybrid cars is expected to push EV manufacturers to offer better value products to customers and provide a boost to hybrids. • The move will also coincide with the Uttar Pradesh government’s recent announcement of a road tax waiver for hybrid cars. • The proposal has the potential to significantly boost the sales of hybrid cars and make them a more attractive option for car buyers.