With India embracing a green energy revolution and pushing for electric vehicle ( EV ) adoption, one policy inconsistency has left EV drivers and companies questioning the fairness of the current tax regime— Goods and Services Tax ( GST ) on EV charging, while electricity, a key input for this service, remains GST exempt.
This disparity comes into sharp focus as the government promotes EV adoption through various incentives, yet continues to impose 18% GST on charging services. Charging stations, often powered by the same electricity that enjoys an exemption under GST law, are burdened with a tax that escalates operating costs and is passed on to consumers.
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Why is Electricity Exempt from GST?
Electricity is considered a “goods” under the Constitution of India but does not fall under the purview of GST. Instead, electricity attracts taxes like electricity duty imposed by state governments, which vary across states. This decision to keep electricity out of the GST framework was rooted in avoiding double taxation and stabilising the costs of a critical utility.
Charging Services Taxed at 18%??
However, the same principle has not been extended to charging services for EVs. Charging services, classified under “services,” attract 18% GST under the ‘Charging of Batteries’ category. This effectively means that while the power supplied to homes or businesses is not taxed under GST, once it is used to charge an EV at a public station, it becomes taxable. This tax inconsistency results in higher costs for charging providers, which are ultimately passed on to consumers.
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The Concerns of EV Sector and Electric Vehicle Owners
EV industry stakeholders argue that this creates an uneven playing field for EV drivers and companies. The burgeoning EV sector faces higher operational expenses, with businesses being forced to invest heavily in charging infrastructure while dealing with a high GST rate. This directly contradicts the government’s push to encourage a clean and sustainable shift to electric mobility.
Several EV charging providers and industry bodies have been lobbying for either a lower GST rate or an exemption for EV charging services, in line with electricity’s GST-exempt status. They argue that taxing charging services stifles growth, makes EV adoption less appealing, and contradicts the nation’s goals to reduce carbon emissions.
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Are There Solutions on the Horizon?
Many industry experts and legal commentators are calling for reforms that could bring parity between electricity and EV charging services. Suggestions include extending the GST exemption on electricity to include charging services or, at the very least, reducing the GST rate on EV charging to align with the lower rates applicable to EVs and other renewable energy initiatives.
This disparity in GST policy sends mixed signals to consumers and companies in the EV space. While the government is providing incentives to manufacture and purchase electric vehicles ( with EVs themselves taxed at only 5% GST ), the high taxation on charging infrastructure may deter potential buyers from switching to electric vehicles due to high running costs.
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Conclusion
The tax inconsistency highlights the need for a cohesive policy that encourages EV adoption across all fronts—manufacturing, sales, and usage. The continued imposition of an 18% GST on EV charging services while electricity remains tax-exempt raises questions about the government’s commitment to easing the financial burden on EV owners. Until this issue is resolved, EV users and charging service providers will continue to bear the brunt of these regulatory double standards, potentially slowing down India’s clean energy transition.
For now, it remains to be seen if the government will take steps to rectify this situation and bring much-needed relief to a sector that is crucial for India’s future sustainability goals.
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