MC Exclusive: Hybrid Cars could see a budget boost with potential cess cut

The proposal to remove the cess charged on hybrid cars is still under consideration and a final decision has not been made yet. Representation Image (Credit: Toyota Motor Corporation)

Prospective buyers of hybrid cars may soon have reason to celebrate, as the upcoming budget may have a proposal to reduce taxes on such vehicles. According to sources, the finance ministry is considering a proposal from the Ministry of Heavy Industries to remove the 15 percent cess currently imposed on top of the 28 percent Goods and Services Tax (GST) on Hybrid Electric Vehicles (HEVs).

The proposal, if implemented, will provide a strong boost to sales of hybrid cars in the country, as it will reduce the tax differential between hybrids and electric cars. The move will also coincide with the Uttar Pradesh government’s recent announcement of a road tax waiver for hybrid cars.

Before 2018, hybrids were treated similarly to battery-operated electric vehicles and were eligible for incentives. However, in 2018, the government differentiated between the two categories by removing tax benefits from hybrid vehicles, resulting in a total tax rate of 43 percent (28 percent GST plus 15 percent cess). In that time period, the GST Council has reduced rates on electric vehicles from 12 percent to five percent.

To be sure, the proposal to remove the cess charged on hybrid cars is still under consideration and a final decision has not been made yet.

Emailed queries to the Ministries of Finance and Heavy Industries did not receive a response by the time of publication.

“The penetration of HEVs is coming very close to EVs. Manufacturers of hybrid vehicles have been advocating for benefits, claiming that hybrids are a greener solution compared to pure Internal Combustion Engine Vehicles (ICEVs). According to our analysis, the average cost of a luxury hybrid vehicle will decrease by Rs 27 lakh, and for mass-market players, prices will drop by Rs 2 lakh,” says Ravi Bhatia, MD of JATO Dynamics India.

This move is expected to significantly boost both hybrids and EVs. “It will also push EV manufacturers to offer better value products to customers and provide a boost to hybrids,” Bhatia added.

As per industry data, the total number of hybrid cars sold during the first quarter of financial year 2024-25 (April 24-June 24) was 23,200 units, with a penetration level of 2.3 percent. This is an increase from the 14,400 units sold during the same period last year. For the entire calendar year 2023, 996,614 hybrid cars were sold, representing 1.4 percent of the total passenger vehicle market.