Hybrid carmakers have recently approached the ministry of heavy industries seeking tax incentives, highlighting concerns over tax parity between hybrids and electric vehicles in the automotive industry.

According to sources familiar with the matter, hybrid manufacturers are advocating for tax benefits due to the lower tax rates for clean mobility. While electric vehicles are taxed at 5%, hybrids face a higher tax rate equivalent to fossil-fuel vehicles.

The heavy industries ministry has been approached by hybrid carmakers to address the disparity in taxes and define clean mobility. This move comes as the government aims to promote all forms of clean mobility, as reported by Mint on 6 June.

Debate and Consultations

A draft of the Delhi EV Policy 2.0 proposing equal incentives for electric and hybrid vehicles sparked discussions in April, leading to consultations between the heavy industries ministry and automakers.

The issue of tax incentives for hybrids has been a long-standing concern, with questions raised about reducing reliance on Chinese supply chains for EVs and the willingness of state governments to forego tax revenue to support hybrids.

Industry experts have emphasized the need to diversify electric vehicle portfolios to mitigate risks associated with Chinese supply chains. Alternative technologies such as biofuels, strong hybrids, compressed natural gas, liquified natural gas, and hydrogen have been suggested to reduce dependency on a single technology.

SHEV, PHEV

Hybrid vehicles come in two types: strong hybrid electric vehicles (SHEVs) and plug-in hybrid electric vehicles (PHEVs). SHEVs combine fossil fuels with a battery-powered motor, while PHEVs have a charging port for a battery and an internal combustion engine running on fossil fuels.

Leading hybrid manufacturers in India include Maruti Suzuki, Toyota, and Honda Cars India, with Maruti Suzuki and Toyota having a strategic partnership for hybrid technology sharing.

Maruti Suzuki's senior executive officer for corporate affairs, Rahul Bharti, highlighted the challenges faced by hybrid vehicles in terms of GST rates and cost implications. Policy support is crucial to boost hybrid adoption and localize supply chains in India.

Compensation Cess

The debate over hybrid vehicle taxation centers around the compensation cess, which is imposed on fossil fuel and hybrid vehicles but not on EVs. While electric vehicles attract a 5% GST, hybrids and fossil-fuel vehicles face a 28% tax.

Khushboo Jain, principal associate at Roedl & Partner India, pointed out that consumers currently pay a 43% tax on fossil fuel or hybrid vehicles, including a 28% GST and a 15% compensation cess. Lowering the compensation cess could be a consideration for states within the GST Council.

Source: Mint