GST Council Considers Hiking Tax on Luxury EVs to 18%, Aiming for Equitable Clean Mobility
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The Goods and Services Tax (GST) Council is weighing a proposal that could significantly alter the landscape of India’s electric vehicle (EV) market. According to sources, the council is considering a GST hike from 5% to 18% on luxury electric four-wheelers priced between ₹20–40 lakh. The move is part of a broader effort to ensure that India’s tax system on EVs remains fair, revenue-neutral, and tilted toward supporting mass adoption rather than high-end consumption.
Currently, all EVs enjoy a flat 5% GST rate, irrespective of pricing. While this has been a strong incentive for accelerating EV adoption, policymakers argue that the uniform benefit disproportionately favours wealthy buyers of premium electric models, which are often priced well beyond the reach of the middle class. The Group of Ministers (GoM) reviewing the structure has recommended that premium EVs should not be subsidised at the same rate as affordable vehicles and public transport fleets.
If implemented, this tax hike would narrow government revenue losses from the growing luxury EV segment while ensuring continued tax support for entry-level electric cars, scooters, and electric buses. Electric buses, in particular, will continue to attract the lower 5% GST, reflecting the government’s priority to boost mass mobility solutions and sustainable public transport systems.
Market Implications
A shift in GST rates could reshape consumer choices in the Indian EV market. With higher taxes, premium EVs in the ₹20–40 lakh bracket may become less attractive to affluent buyers, potentially slowing demand in the luxury segment. On the other hand, the price differential between affordable EVs and premium EVs will widen further, reinforcing the government’s intent to make clean mobility accessible to the masses rather than concentrating subsidies in the luxury segment.
This tax differentiation also signals a policy shift from blanket incentives to targeted benefits. The government seems to be aligning its tax framework with its broader goals of electrifying public transport fleets, enhancing last-mile connectivity, and supporting mass adoption of EVs in the two- and three-wheeler segments.
Automaker Response
For automakers, this potential reform will require recalibrating pricing strategies, supply chain decisions, and long-term investment plans. Companies focused on premium electric cars may have to revisit their India market strategy, either absorbing part of the tax burden or exploring localisation efforts to keep models competitively priced.
Conversely, manufacturers of affordable EVs and commercial electric fleets may gain a stronger competitive edge, benefitting from the continuation of lower GST rates. Some analysts believe that this move could push luxury-focused brands to diversify into more affordable offerings, further intensifying competition in the entry and mid-tier EV space.
HEV’s Take
If enacted, the GST hike on luxury EVs would reshape market dynamics by making high-ticket electric cars less attractive to wealthy buyers while encouraging adoption in the affordable segment. The policy signals stronger government support for mass adoption, public transport electrification, and a fairer clean mobility transition in India. Automakers must prepare for strategic demand shifts and realign their product mix to stay ahead in an evolving regulatory environment.
The final decision will be made at the GST Council meeting scheduled in New Delhi on September 3–4, and the outcome could set a precedent for how India balances fiscal considerations with its ambitious EV roadmap.
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