NITI Aayog bats for GST relief, insurance push to boost vehicle scrapping

Government think tank Niti Aayog has called for a reduction in Goods and Services Tax (GST) rates across various stages of vehicle scrapping through registered facilities, in a bid to promote recycling of end-of-life vehicles (ELVs) and strengthen India’s circular economy.

 

In a report titled Enhancing Circular Economy of End-of-Life Vehicles (ELVs) in India, the Aayog said the rising volume of ELVs on Indian roads necessitates the creation of a formalised, sustainable and economically viable scrapping ecosystem. It noted that while regulatory measures such as fitness testing mandates, standardised scrapping protocols and Extended Producer Responsibility (EPR) obligations have been introduced, taxation continues to be a key impediment.

   

The current GST framework applicable to the formal ELV value chain is marked by non-uniform rates, the report said. Earlier, GST ranged between 12 and 18 per cent on ELV procurement, 18 per cent on the sale of metal scrap and 28 per cent on the resale of spare parts.

 

Following the GST Council’s decision to restructure tax slabs effective September 22, 2025, ELV-related products will still fall under two slabs — 5 per cent and 18 per cent — with most products continuing to attract the higher rate.

 

“In contrast, informal operators face no comparable GST obligations, creating a cost disadvantage for registered vehicle scrapping facilities (RVSFs). A reduction in GST rates would help promote parity and support formalisation,” the Aayog said, adding that the Ministry of Road Transport and Highways should recommend the proposed changes to the GST Council.

 

The report also referred to the 54th GST Council meeting, which introduced the Reverse Charge Mechanism (RCM) on the supply of metal scrap from unregistered dealers to registered recyclers. Under RCM, the liability to pay tax shifts from the supplier to the recipient.

 

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

 

Beyond taxation, the Aayog recommended using vehicle insurance as a lever to encourage timely scrapping. As vehicles age, insurance premiums should reflect the higher risk profile, increasing the cost of ownership beyond a certain age, such as 15 years, and nudging owners towards scrappage.

 

It also flagged the absence of a structured pathway for integrating total loss vehicles (TLVs) into the ELV ecosystem as a key gap. The report recommended measures to ensure that only roadworthy vehicles with valid insurance ply on roads, while vehicles lacking documentation are directed to registered scrapping facilities.

 

According to the Aayog, aligning taxation, insurance and enforcement mechanisms is critical to scaling up formal ELV recycling and reducing the dominance of informal operators in the sector.