GST reforms give boost to EVs, but inverted tax on battery still a hurdle: Sun Mobility’s Chetan Maini

The recent GST reforms have given a clear signal in favour of electric vehicles (EVs), but industry experts say certain challenges, particularly the taxation of batteries, could slow adoption.

Speaking at a CNBC-TV18 panel discussion, Chetan Maini, Co-Founder and Chairman of Sun Mobility, said the government’s approach “is very clear in favour of electrics, which achieves both [emission reduction and fossil fuel savings].”

Maini welcomed the GST rate for EVs, currently set at 5%, compared with 18% to 40% for other vehicle platforms, saying it would provide a boost to the entire electric mobility ecosystem. However, he cautioned that the inverted tax structure on batteries, which are still taxed at 18%, “creates a significant challenge” for companies operating battery swapping and charging services. “A customer paying for a swap may pay ₹40–50 plus 18% tax, whereas the vehicle itself is taxed at 5%. This extra 13% burden discourages adoption, particularly for gig workers or delivery personnel,” he explained.

Mahesh Babu, MD of Olectra Greentech, noted that the GST changes had little immediate impact on EV sales, but offered working capital benefits. “The input credit, which was at 28% and 18%, has come down significantly, and that is helping our working capital going forward,” he said. Babu added that while other technologies such as hybrids, hydrogen, and CNG will continue to exist in the market, “major growth is coming from EVs, which we are seeing across two-wheelers, cars, commercial vehicles, three-wheelers, and more.”

Industry expert Arun Kumar Malhotra highlighted that while high-priced EVs remain affordable due to the 5% GST, smaller compact vehicles face a relative disadvantage compared with internal combustion engine models. He noted that hybrids have not gained much from the recent GST cut. “For compact vehicles in the short run, EVs are at a disadvantage,” he said. Malhotra also pointed out that upcoming CAFÉ norms, which award bonus points for EVs and strong hybrids, will further shape adoption trends.

Maini emphasised that maintaining current GST rates, improving financing availability, expanding charging and battery swapping infrastructure, and extending incentives for OEMs and suppliers would be key to achieving India’s goal of 30% vehicle electrification by 2030.

The panel highlighted that while EVs remain the primary focus of central government policy, hybrids continue to have demand, especially in certain segments, underlining the importance of a multi-technology approach to India’s rapidly growing mobility market.

Below is the excerpt of the discussion.

Q: Do you think this GST reduction somehow settles the debate within the industry on whether the government should only give financial incentives for electric mobility, or should hybrids also get similar incentives?

Maini: As a country growing the way we are, reducing emissions is important, but eliminating emissions and reducing our complete fossil fuel consumption is much more critical. I think the government’s intent is very clear in favour of electrics, which achieves both. By keeping EVs at 5% and all other vehicle platforms at 18% to 40%, that itself is a big drop. Many smaller vehicles are now at 18%, and this represents a significant change for the industry. I think this will really give a boost to the entire community. At the same time, the intention is very clear: electrics are most beneficial and should therefore continue to enjoy the 5% rate.

Q: What I would also like to ask is, with the current tax rates, do you feel it will be financially attractive for a customer to buy a small EV compared to an ICE vehicle or a hybrid?

Maini: The differential has been reduced by 10%, so in the short term, we might see higher sales of ICE and hybrid vehicles. Electrification will continue to grow, but the overall market size will expand with the GST reforms. From a market share perspective, in the short term, electrics may not see the same growth rate as in the last 24 months.

Q: Do you feel more policy clarity is needed, especially since some state governments are incentivising hybrid vehicles similarly to EVs, while the Centre is clear it will financially support only electric vehicles?

Maini: The central government has taken the right decision; it’s the right way forward. Hopefully, over time, the states will follow this approach, leading to more uniformity in policy across the country. However, there are challenges around GST implementation. Regular vehicles are at 18%, and batteries are still taxed at 18%, which increases working capital requirements for automotive companies. For businesses like battery swapping, this 18% tax adds additional capital costs. Even the customer using a swapping or charging service is charged 18%, similar to ICE vehicles, whereas everything else is at 5%. This inverted duty structure for batteries needs correction. Reducing it from 18% to 5% will boost electric mobility, charging, and swapping services.

Q: Could you explain how the GST changes impact battery-as-a-service models, like what Sun Mobility offers, including battery swapping and battery purchase costs?

Maini: If you purchase or sell a battery separately, it’s taxed at 18%, while vehicles themselves are at 5%. This inverted duty structure means OEMs may eventually get a refund, but capital is tied up in the meantime. In battery swapping or service businesses, the battery is separate, so the tax remains 18%, which creates a significant challenge. A customer paying for a swap may pay ₹40–50 plus 18% tax, whereas the vehicle itself is taxed at 5%. This extra 13% burden discourages adoption, particularly for gig workers or delivery personnel. We need to encourage electric mobility without these hurdles.

Q: To increase EV sales and achieve 30% electrification by 2030, what actions are needed, and which areas require acceleration?

Maini: I see four key areas. First, maintaining the GST rates as they are is critical. Second, more financing needs to be available and easier to access; this remains a challenge for consumers. Third, infrastructure must be developed quickly so consumers feel confident they won’t be stranded, whether it’s for swapping or charging. The government’s new policy on infrastructure should take effect in the coming weeks. Finally, the existing PLI scheme can be extended to a wider group of OEMs and tier-one suppliers, reducing costs for the end customer and further accelerating research, development, and manufacturing in the country.

Q: When we look at the electric vehicle versus hybrid debate, financial incentives have been for EVs. Yes, some states are also giving financial incentives for hybrids, but the central policy has now become clear with the GST reform. Having said that, if you look at the August numbers, based on retail data from the Federation of Automobile Dealers, passenger cars: the percentage of electric car sales was 4.7% in July, 5.3% in August. Hybrids were 8% in July and 8.13% in August. For commercial vehicles, EVs were at 2% in August, hybrids at 0.4%. It seems there is still demand for hybrid vehicles. Do you feel this demand will continue, despite there being no special financial incentives for hybrids?

Babu: First of all, due to this GST change, nothing has been significantly impacted. EVs were at 5%, and that continues to be the case. One benefit we got is that input credit, which was at 28% and 18%, has come down significantly, and that is helping our working capital going forward. As rightly said, there is a push for EVs from the central government and state governments, but we have to recognise that many technologies will be in the market—hybrids, hydrogen, CNG, LNG, and others. India's mobility requirements are so high that it is difficult to discount any technology at this stage. However, major growth is coming from EVs, which we are seeing across two-wheelers, cars, commercial vehicles, three-wheelers, and more. I would say EV adoption and the CAGR we have been seeing is not derailed by GST. In fact, it has helped the working capital for many EV companies due to input credit availability and improved cash flow. While other technologies are relevant, EVs still have a strong future.

Q: Let me take that question to Malhotra. Mr. Malhotra, what do you feel adoption will look like going forward? Will EVs and hybrids go side by side, or does this give a clear push for greater EV adoption?

Malhotra: If you look at the situation today, there was apprehension that EVs above a certain price—say about ₹25 lakh—would see GST increase because EVs can sell even at ₹1 crore for super-luxury vehicles. That has remained at 5%, which is positive. But if you look at the gap between EVs and ICE vehicles in compact vehicles, it has gone from 23% to 30%, which is a disadvantage. Hybrids have not gained much from this GST cut. For vehicles above a certain price, which were taxed at 43% + cess, GST is now come at 40%, and bigger SUVs have moved from 50% to 40%. So, there is not much gain from GST. The next challenge will be the upcoming CAFÉ norms proposal, which gives bonus points—three for EVs and two for strong hybrids. Clearly, these are the two technologies the government is betting on. For compact vehicles in the short run, EVs are at a disadvantage.

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