GST on Passenger Transportation in EVs and Renting of EVs

Shashank Tellakula Anand | Last updated: 31 August 2024

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This article clarifies the Goods and Services Tax (GST) implications for electric vehicle (EV) passenger transportation and rental services. It distinguishes between passenger transport services (Heading 9964) and renting of vehicles with operators (Heading 9966), noting that current GST law may not explicitly include electricity as 'fuel'. While the residual rate might suggest 18%, the author opines that a concessional rate of 2.5% or 6% is more likely, aligning with the government's aim to promote EVs. The article also touches upon potential benefits from Section 11A of the Finance Act 2024 for the EV industry.

Renting v/s Transportation of Passengers

As per Circular No. 177/09/2022-TRU Entry 15:

GST on EV Passenger Transport and Rentals Explained

Renting of motor vehicle with operator for transport of passengers falls under Heading 9966. According to the explanatory notes to heading 9966, the service covered here is renting of motor vehicle for transport of passengers for a period of time where the renter (customer) defines how and when the vehicles will be operated, determining schedules, routes and other operational considerations.

Eg: Shoffr, Rego Cabs, Ola Rentals, Uber/Ola Outstation and includes all tour and travel operators who rent out vehicles with drivers across the country.

'Passenger transport services' on the other hand fall under Heading 9964. According to the explanatory notes Heading 9964 covers passenger transport services over pre-determined routes on pre-determined schedules.

Eg: Ola, Uber, Rapido, Bluesmart.

The circular also clarified that where the body corporate rents the motor vehicle for a period of time, during which the motor vehicle shall be at the disposal of the body corporate(i.e., to use in the manner as it likes subject to agreement with the person providing vehicle on rent), the service would fall under Heading 9966, and the body corporate shall be liable to pay GST on the same under RCM and not otherwise.

Rate of Tax on transportation of passengers and renting of transport vehicles (NN 11/2017 CT(R))

Heading	Description	Rate of Tax
9964 (Passenger transport services)	Transport of passengers by any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient.	1) 2.5% - With a condition to not avail ITC except ITC availed in the same line of business at a rate not higher than @2.5%. 2) 6% - Without any restriction on availment of ITC
9964 (Passenger transport services)	Passenger transport services other than covered above	9% (no ITC restrictions)
9966 (Rental services of transport vehicles with operators)	Renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient.	1) 2.5% - With a condition to not avail ITC except ITC availed in the same line of business at a rate not higher than @2.5%. 2) 6% - Without any restriction on availment of ITC
	Rental services of transport vehicles with operators, other than above	9% (no ITC restrictions)

Note: In terms of Entry 17 of NN 12/2017 CT(R) services by way of transportation of passengers by e-rickshaw or metered cabs is exempt if not provided through E-commerce operators.

The Delhi High Court in the case of UBER INDIA SYSTEMS PRIVATE LIMITED v/s UNION OF INDIA & ANR. (W.P.(C) 14579/2021 & CM APPL. 45963/2021) upheld that rickshaw or metered cabs provided through E-commerce operators is taxable and not violative of Article 14,19(1)(g) and 21 of the Constitution.

Now the question arises, what would the GST rate be in the following cases:

Transportation of passengers in EVs where cost of electricity is included in the consideration charged to service recipient.
Renting of EVs (Transport vehicle) with operator where cost of electricity is included in the consideration charged to service recipient.

Author's comments

The GST Council in their 14th meeting recommended a concessional rate of tax i.e., 2.5%/6% as compared to regular rate of tax i.e., 9% when cost of fuel is included under Heading 9964 or 9966 for a sole reason that inputs such as fuel, etc. for a transportation sector were not in GST.
It is also important to note that there is no GST on transmission or distribution of electricity by an electricity transmission or distribution utility as per entry 25 of NN 12/2017CT(R). Therefore, there is no GST input on electricity used to run EVs which are used to carry passengers or rented out to a third party.
EV vehicles are listed at a GST rate of 5%, whereas other motor vehicles (other than SPVs) attract 28% + applicable cess (where applicable). This significant variance in tax rate is a testament to the country's initiative to decarbonise road transport.
Based on the present wordings in the law, assuming that fuel does not include electricity, the residual provision would apply, i.e., 18% with ITC benefit.
In the case of SENIOR ELECTRIC INSPECTOR VERSUS LAXMINARAYAN CHOPRA No.- C.A. 328 OF 1958 dt. August 16th, 1961, the Supreme Court held that the maxim "Contemporanea expositio est optima et fortissima in lege" which means that the best way to construe a document is to read it as it would have read when made as laid down by Coke was applied to construing ancient statutes but not to interpreting Acts which are comparatively modern. It was also held that unless a contrary intention appears, an interpretation should be given to the words by taking in new facts and situations, if the words are capable of comprehending them.
The author opines that, the GST law has yet to modify the GST Rates with respect to EV vehicle related services. The concept of 'fuel/electricity' here should be mutandis-mutandis.

On the basis the above and the government's agenda to promote the EV Sector, the author is of the opinion the rate of tax would be 2.5%without ITC/6% with ITC on

o Transportation of passengers in EVs where cost of electricity is included in the consideration charged to service recipient.

o Renting of EVs (Transport vehicle) with operator where cost of electricity is included in the consideration charged to service recipient.

However, the author is of the opinion that the government should come up with the clarification on the same and it would be beneficial to the EV manufacturing sector and the transportation sector. It is also suggested that the EV Industry make a representation to the govt. to change the rate for transportation services to 5% with ITC benefit considering the rate of the vehicle vis-à-vis the service element. With the introduction of Section 11A this seems to be a possible benefit that the EV industry can look forward to.

Section 11A was introduced through section 116 Finance Act 2024 dated 16-8-2024. This section grants power to the government to waive off short levy or non-levy of GST of any practise followed by an industry by notification in the Official Gazette.

I would like to thank CA. Akshay M Hiregange sir for vetting this article.

Abbreviations:

EV - Electric Vehicles
NN - Notification
ITC - Input Tax Credit
GST - Goods and Services Tax
CT(R) - Central Tax(Rate)

Disclaimer: The views expressed in this article are personal to the authors and are an attempt to interpret the nascent GST law. We recommend professional assistance where required.

The authors can also be reached at akshay@hnaindia.com & shashank@hnaindia.co.in.

Attached File : 4006486_52436_gst_on_passenger_transportation_in_evs_and_renting_of_evs.pdf

FAQ :

Passenger transport services (Heading 9964) are for services on pre-determined routes and schedules, like Ola or Uber rides. Renting of vehicles with operators (Heading 9966) is when the customer dictates the schedule and route, such as Ola Rentals or tour operators.

For passenger transport (9964) and rental services with operators (9966), the GST rates are 2.5% or 6% if the cost of fuel is included, with conditions on Input Tax Credit (ITC). Otherwise, the rate is 9%.

Based on the current wording, it is assumed that 'fuel' does not include electricity. This distinction could lead to a residual GST rate of 18% if not clarified.

The author believes that, in line with government initiatives to promote EVs, the GST rate for passenger transport and renting of EVs where electricity cost is included should be 2.5% (without ITC) or 6% (with ITC).

Transportation of passengers by e-rickshaw or metered cabs is exempt if not provided through e-commerce operators. However, services provided through e-commerce operators are taxable.