In a decision closely watched by automakers and policy analysts alike, the Goods and Services Tax (GST) Council announced that electric vehicles (EVs) will continue to attract a concessional 5% GST rate. This move, finalized during the Council’s meeting on September 3-4, 2025, has been widely welcomed by the EV industry. The announcement comes amid broader tax reforms under the new “GST 2.0” framework, which has reshaped taxation across goods and services in India.
Why the EV Industry Was Concerned
Before the Council meeting, reports indicated that the government was considering a steep rise in EV taxation. The proposals included raising GST to 18% on electric cars priced between ₹20 lakh and ₹40 lakh, and to 28% for vehicles priced above ₹40 lakh.
Such a change could have had significant implications for automakers like Tata Motors, Mahindra & Mahindra, and international companies entering India’s EV market. Industry insiders warned that higher GST rates would slow adoption and discourage investment in clean technology at a critical growth stage.
Quick Summary (Vertical Table)
Aspect |
Details |
|---|---|
Current GST on EVs |
Retained at 5% |
Earlier proposal |
18% on EVs priced ₹20-40 lakh, 28% above ₹40 lakh |
Decision date |
September 3-4, 2025 |
Impact on ICE vehicles |
Small petrol and diesel cars moved to 18% GST |
Implementation date |
September 22, 2025 |
Key beneficiaries |
EV manufacturers, consumers, and India’s clean mobility agenda |
Official source |
The Council’s Final Decision
The Council chose continuity over disruption. By retaining the concessional 5% GST rate on EVs, policymakers signaled their commitment to supporting clean mobility and sustaining India’s broader climate objectives.
Industry leaders interpreted this as an encouraging sign of long-term stability. Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, described it as a “forward-looking move that reinforces India’s vision for sustainable, zero-emission transport.”
Executives from other companies also highlighted the importance of tax certainty, which helps manufacturers plan product pipelines, expand production capacity, and make technology investments.
GST 2.0: The Bigger Picture
The EV tax decision did not occur in isolation. It was part of a sweeping overhaul of India’s indirect tax system. Under “GST 2.0,” the earlier four-slab structure (5%, 12%, 18%, and 28%) was rationalized into two broad slabs 5% and 18% with a special 40% rate for luxury and sin goods.
Key changes affecting the automobile sector include:
-
Small petrol and diesel cars: shifted to 18% GST, making them more affordable.
-
Two-wheelers under 350cc and three-wheelers: also fall under the 18% bracket.
-
Luxury goods and larger ICE cars: categorized under the 40% rate.
In this context, EVs retaining the 5% rate stands out as a clear exception, underscoring their policy priority.
Impact on Stakeholders
1. Manufacturers
For carmakers, particularly Tata Motors and Mahindra & Mahindra, the decision is a major boost. It assures that investments in EV platforms and localized manufacturing remain viable. Global automakers exploring the Indian market also benefit from policy clarity.
2. Consumers
Buyers will continue to enjoy lower prices for EVs compared to what they might have faced under higher tax slabs. This stability is crucial in India, where affordability plays a central role in consumer choice.
3. Policy Goals
India has ambitious climate targets, including reducing dependence on fossil fuels and cutting emissions. By keeping EVs at 5% GST, the government reinforces its commitment to sustainable mobility.
4. Competitive Landscape
While small petrol and diesel cars have become cheaper under the 18% slab, EVs still enjoy a clear cost advantage in terms of taxation. This ensures they remain attractive in the long run, even as ICE vehicles gain some relief.
Effective Date and Timeline
The revised GST framework, including the automobile-specific rates, will come into force on September 22, 2025. The timing, just ahead of the festive season, could give a boost to both EV and ICE car sales, as customers look to benefit from clearer pricing.
Frequently Asked Questions (FAQs)
Q1. What is the GST rate on electric vehicles after the Council’s decision?
A. It remains at a concessional 5% across all categories of EVs.
Q2. Was there a proposal to increase GST on EVs?
A. Yes, a ministerial panel had suggested 18% for EVs priced ₹20–40 lakh and 28% for those above ₹40 lakh, but this was not accepted.
Q3. When will the new GST framework take effect?
A. The revised structure will be implemented from September 22, 2025.
Q4. How does this impact petrol and diesel cars?
A. Small petrol and diesel cars now fall under the 18% slab, making them cheaper than before.
Q5. Why is this decision significant for the EV sector?
A. It provides price stability, supports consumer adoption, and signals long-term policy support for clean mobility.
Looking Ahead
The Council’s decision to hold the line at 5% GST for EVs demonstrates a commitment to policy stability, which is critical for a young and fast-growing sector. While competition with cheaper ICE cars may intensify, EV makers can move forward with confidence that their tax advantages remain intact.
In the broader context of GST 2.0, the move highlights how India is balancing fiscal needs with sustainability goals supporting clean energy technologies while rationalizing tax structures for conventional vehicles and other goods.
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