The GST Dilemma: Why Lowering GST on Batteries Is Essential for a Thriving Gig Economy

India's electric vehicle (EV) revolution is unfolding at a remarkable pace. With over 1.94 million EV units sold last year alone, India now leads the world in electric three-wheelers, surpassing even China. With sales of over 1.14 million electric two-wheelers and 0.7 million electric three-wheelers, India’s trajectory suggests we’re on course to maintain our leadership in the two-wheeler sector through 2025.

At the heart of this momentum is the gig economy, projected to grow to 23.5 million workers by 2029-30, as reported by NITI Aayog. As of now, a significant portion of electric two- and three-wheelers are used for commercial purposes, contributing significantly to cleaner urban mobility.

However, a critical issue persists: the current GST structure on EV batteries, which unfairly burdens those least able to bear it. While EVs with fixed batteries are taxed at 5%, standalone lithium-ion batteries—particularly those used in battery swapping as well as batteries replaced at the end of battery life cycle—are taxed at a steep 18%.

This disparity increases costs for millions of gig workers and fleet operators, while also hindering the growth of India’s battery-swapping infrastructure, which is essential for accelerating EV adoption and supporting a greener, more sustainable mobility future.

For India’s EV market to maintain its forward momentum, immediate intervention is needed. The government has taken several commendable steps, such as the FAME incentives and PLI schemes, which have made EVs more accessible. However, to achieve 30% EV penetration in new vehicle registrations by 2030, addressing this GST disparity is paramount. Without correcting this anomaly, the full potential of India's EV sector—and the benefits it can bring to drivers, consumers, and the environment—will remain out of reach.

The Economic Ripple Effects of GST Disparities

The 18% GST on standalone batteries not only hampers the growth of the EV ecosystem but also directly impacts gig workers who rely on battery-swapping services. For instance, if a gig worker spends ₹2,000 to ₹3,000 per month on battery swapping, the 18% GST translates to an additional ₹360 to ₹540 in expenses, thereby reducing their net earnings.

Considering that the average monthly income of a gig worker in India is around ₹18,000 to ₹20,000, this additional cost represents a significant portion of their earnings and is an additional financial burden. Aligning the GST on standalone batteries with the 5% rate applied to EVs could alleviate this financial burden, making battery-swapping services more affordable and supporting the livelihoods of gig workers. 

Battery swapping addresses several pain points: it alleviates range anxiety, reduces high upfront costs, and ensures that drivers can quickly replace drained batteries without waiting hours for a charge. For gig workers and electric three-wheeler drivers—many of whom rely on quick turnarounds to maximize earnings—battery swapping is essential.

Further, the rise of e-commerce giants like Amazon and Flipkart, who are committed to transitioning their delivery fleets to 100% electric vehicles, underscores the urgent need for affordable, accessible battery-swapping infrastructure. A straightforward tax rationalization, by aligning the GST on standalone batteries to 5%, would substantially lower operational costs for delivery fleets, encouraging more businesses to adopt EVs. 

This in turn would expand the EV market, accelerate India’s transition to sustainable mobility, and make EVs more attractive than petrol and diesel vehicles. The tax shift would create a ripple effect, reducing dependence on imported oil, lowering carbon emissions, and propelling India toward a cleaner, greener future.

The Path Forward: A Call for Action

For India’s EV ecosystem to be equitable, efficient, and future-proof, policymakers must urgently address the disparity in GST rates for EV batteries. To address this, they can consider:

1. Reducing GST on Standalone Lithium-Ion Batteries: Bring the GST on standalone EV batteries down to 5% to align with the rate for integrated EV batteries.
2. Implementing a Uniform GST Rate for All EV Batteries: Apply a standard 5% GST rate for all EV batteries, regardless of their capacity or use, to ensure consistency.

A uniform 5% GST rate on all EV batteries is not just a financial adjustment; it’s a crucial step toward meeting India’s electric vehicle goals. With EV sales in India projected to reach 10 million units by 2030, tax disparities must not stifle innovation. Aligning GST rates on standalone batteries with those on integrated EV batteries will unlock economic opportunities, create jobs, and drive India toward a net-zero future.

Pulkit Khurana is Co-Founder of Battery Smart. Authors' views are personal.