At present, medium and large sized hybrid cars are taxed at a rate of 43%, including a ‘compensation cess’ of 15% — only marginally lower than the 45% tax charged for regular cars.
However, smaller cars — with engine capacity of up to 1,200 cc — enjoy tax discounts.
Small petrol cars of up to 1.2 liter engine capacity attract compensation cess of 1%, while diesel cars of up to 1.5 liter engine capacity are charged at just 3% by way of cess. There is no cess on small hybrid cars.
A slashing of the compensation cess or GST on medium and bigger cars would have made them more competitive against petrol and diesel cars in India, as well as against smaller hybrids.
The decision to maintain the status quo may play to the advantage of India’s largest carmaker Maruti Suzuki, which is gearing up to launch the hybrid version of Swift, it’s most popular car in India, in coming days.
The Swift Hybrid, launched in Japan a few days ago, is powered by a 1200 cc engine in Japan, and delivers a mileage of around 32 km per liter of petrol.
The revenue generated from the cess is passed on to the state in which the car was built, while the regular GST is passed on to the state in which the car is sold. The cess will be phased out in another four years.
Finance minister Piyush Goyal said representations were received from various quarters to reduce the tax on medium and bigger hybrid cars, which use both electricity and petroleum.
However, a decision has been taken not to extend the cuts.
“The GST Council has not recommended any change in the GST tax structure of Hybrid cars, after due consideration of representations received,” he said.
The decision not to extend substantial cuts to hybrid vehicles will leave pure electrical vehicles as the only category with low GST.
Pure electrical vehicles attract a GST rate of 12%, or about a fourth of what is charged on regular cars.