The Indian government is actively promoting electric vehicles (EVs) and flex-fuel vehicles by offering various incentives. However, the scenario for hybrid vehicles is quite different, with current taxation levels nearly matching those of petrol variants, resulting in high prices for hybrid cars like the Innova Hycross. Now, there’s talk of a potential reduction in taxes on hybrid cars, which could translate to a significant discount of up to Rs 7 lakh on models such as the Toyota Innova Hycross and Maruti Grand Vitara. Let’s delve into the anticipated changes in the tax structure for hybrid cars in India.

Urge for New Taxation Rules

Nitin Gadkari, the Minister of Road Transport and Highways, recently addressed this issue during News18’s Rising Bharat Summit 2024. He emphasized that the current tax structure of 43% (28% GST + Cess) on hybrids is unjustifiable, considering that hybrids, while not as clean as EVs, are still more environmentally friendly than traditional internal combustion engines (ICE). Gadkari urged the finance minister to address this disparity in the upcoming GST council meeting, proposing a reduction of GST from 28% to 12% to make hybrid cars more accessible and affordable. What implications does this potential change have for hybrid car enthusiasts in India?

As things stand, the combined GST (28%) and Cess (15%) on hybrids amount to 43%. Gadkari’s proposal to slash GST to 12% would result in a new tax structure of GST (12%) + Cess (15%) = 27%. This reduction could make hybrids approximately 16% cheaper. For instance, if a car like the Innova Hyrcross currently has an ex-showroom price of Rs 25 lakh (inclusive of 15% cess + 28% GST), the new taxation scheme would bring down the ex-showroom price to Rs 18 lakh (15% cess + 12% GST), leading to substantial savings of Rs 6 lakh and making hybrids more affordable than their petrol counterparts in certain scenarios.

Toyota’s Advocacy for Reduced Taxes

Toyota has been actively lobbying for reduced taxes on hybrid cars. Last year, the country head of Toyota India wrote a letter to Niti Aayog, advocating for a tax reduction to 37% for hybrids and 34% for flex-fuel hybrids. Additionally, Toyota sought government incentives such as lower road taxes, similar to those offered to EV buyers. While there was no official response from the company or Niti Aayog at the time, recent developments suggest that Toyota’s plea is gaining traction.

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