NITI calls for GST relief, insurance push to boost vehicle scrapping

Think tank flags tax disadvantage for formal facilities, urges parity with informal sector

Government think tank NITI Aayog has recommended that goods and services tax (GST) rates be reduced on various aspects of vehicle scrapping through registered facilities, seeking to boost the recycling of end-of-life vehicles (ELVs).

 

“The growing volume of ELVs on Indian roads calls for the creation of a formalised, sustainable, and economically viable scrapping ecosystem. In recent years, several regulatory measures have been introduced at the central level, including the enforcement of fitness testing mandates, standardised scrapping protocols, and Extended Producer Responsibility (EPR) obligations, to promote responsible vehicle disposal,” the Aayog said in a report on “Enhancing Circular Economy of End-of-Life Vehicles” in India.

 

The current taxation framework for the formal ELV scrapping value chain is marked by non-uniform GST rates across different stages, the think tank said. It earlier ranged from 12–18 per cent on ELV procurement and 18 per cent on the sale of metal scrap; and was 28 per cent on the resale of spare parts.

 

With new GST slabs effective from September 22, 2025, the tax rates applicable on ELV products will still fall into two non-uniform slabs: 5 per cent and 18 per cent.

 

“Most of the products as mentioned above would fall under the 18 per cent slab. In contrast, informal operators face no comparable GST obligations, creating a cost disadvantage for RVSFs [registered vehicle scrapping facility]. A reduction in their GST rates would help promote parity and support formalisation,” the Aayog said.

 

It added that the Ministry of Road Transport and Highways should make a recommendation to this effect to the GST Council.

 

The 54th GST Council meeting introduced the reverse charge mechanism (RCM) on the supply of metal scrap from unregistered dealers to registered recyclers. RCM shifts the liability to pay GST from the supplier to the recipient of goods or services, instead of the seller.

 

“Extending RCM provisions to ELV procurement could further prevent dual taxation on RVSFs. While a uniform GST rate cut would require broader structural reform, targeted rationalisation of rates for the ELV sector — especially for spare parts and scrap — would significantly ease financial pressure on RVSFs and incentivise formal market participation,” it said.

 

Moreover, it also pushed for vehicle insurance to act as a catalyst for wider adoption of vehicle scrapping. “As the vehicles get older, the insurance premium must reflect the increased risk of accidents of the vehicle beyond a certain age. Thus, increasing cost of ownership, say after 15 years of a vehicle’s life, would act as an incentive to scrap the vehicle in a timely manner,” it said.

 

Additionally, the absence of a structured pathway for integrating Total Loss Vehicles into the ELV ecosystem creates a critical gap in inflow.

 

It recommended that measures are required to ensure that only roadworthy vehicles with valid insurance ply on roads, while directing vehicle owners without proper documentation to scrap their ELV at RVSFs.