56Th GST Council Meet: Auto Sector Braces For Impact, Premium EVs Likely To Face Higher Tax Burdens

As the Goods and Services Tax Council prepares for its 56th assembly on Wednesday under Union Finance Minister Nirmala Sitharaman, with an ambitious agenda targeting comprehensive reforms to the nation's indirect taxation framework, auto makers are bracing for the impact due to the revision.

What's In For EVs

The automotive sector anticipates significant changes as the council advocates for implementing a 5 per cent GST rate on electric vehicles (EVs), forming part of an extensive initiative to transform the current four-tier taxation system into a streamlined dual framework comprising 5 per cent and 18 per cent rates.

Premium EVs could face substantially higher tax burdens, with the taxation committee proposing revised rates of 18 per cent for EVs valued between ₹20 lakh and ₹40 lakh, while vehicles exceeding ₹40 lakh may attract a 28 per cent levy, according to news agency Reuters.

Should the 28 per cent category be integrated into the restructured framework, such high-end vehicles might be reclassified under the proposed 40 per cent category designated for luxury and sin products.

Global Automakers Face Greater Impact

This taxation shift carries significant ramifications for international automotive giants including Tesla, Mercedes-Benz, BMW, and BYD, whereas Indian manufacturers such as Tata Motors and Mahindra & Mahindra are anticipated to experience minimal disruption.

Opposition States Demand Revenue Protection

Opposition-governed states, including West Bengal, have insisted that any levy above the 40 per cent rate should be exclusively allocated for state revenue sharing to compensate for potential fiscal losses, according to PTI reports.

Eight opposition-controlled states -- Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal -- are demanding transparency regarding the federal government's strategy for addressing possible revenue shortfalls resulting from this restructuring. The original GST compensation, supported by cess collections on luxury and demerit goods, concluded in June 2022, creating state concerns about budget deficits.

Massive Product Migration

The comprehensive GST restructuring will witness most commodities currently under 12 per cent and 28 per cent tax rates transitioning to reduced levies. A specialised 40 per cent bracket has been proposed for select items, primarily targeting sin goods categories.

Federal proposals indicate that 99 per cent of products presently in the 12 per cent bracket will shift to the proposed 5 per cent category. Additionally, 90 per cent of items currently taxed at 28 per cent would move to the 18 per cent tier.

Expected Outcomes

The two-day Council session will feature comprehensive discussions on the rate rationalisation strategy, inflation implications, and the revenue distribution mechanism between federal and state governments.

GST Implementation

The GST system, implemented on July 1, 2017, unified central and state taxes including excise duty and VAT into a standardized tax structure. The original design featured four primary tax categories -- 5 per cent, 12 per cent, 18 per cent, and 28 per cent -- alongside compensation cess ranging from 1 per cent to 290 per cent on products such as tobacco, luxury automobiles, and carbonated beverages.