Manufacturers of electric vehicles (EVs) were relieved when the GST Council on the night of 3 September decided to keep the EV tax at the concessional 5% rate. However, they now have to contend with competition from tiny petrol and diesel vehicles, which will be subject to a lower 18% levy.

According to media sources before the Council meeting, the goods and services tax (GST) on electric cars that cost between ₹20 lakh and ₹40 lakh could be increased to 18 per cent, and for those that cost more than ₹40 lakh, to 28 per cent. Concern was raised by these findings in India’s fledgling EV sector.

The announcement was a comfort to EV manufacturers, who interpreted it as a sign of policy stability. “The Council’s decision to maintain the 5% GST rate on EVs is a forward-looking move that reinforces India’s commitment to sustainable, zero-emission mobility and signals long-term policy stability,” stated Shailesh Chandra, managing director (MD), Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility.

“We appreciate the continuation of the 5% GST rate on EVs, which is a critical enabler of India’s clean mobility vision,” stated Rajesh Jejurikar, executive director and chief executive officer (CEO) of Mahindra and Mahindra (M&M) Auto and Farm Sector. This action will strengthen India’s position as a leader in environmentally friendly, sustainable transportation while also hastening the adoption of EVs.

Two of India’s leading producers of electric vehicles are Tata Motors and M&M. All of the nation’s electric carmakers were greatly relieved by the decision made Wednesday night, a senior official of one company told Business Standard.

The ruling was also hailed by luxury automakers, who had been concerned about increased taxes on their electric vehicle portfolios. “In the EV segment, the continuation of the standard 5% GST reinforces the government’s sustained commitment to advancing electrification and promoting sustainable mobility,” stated Jyoti Malhotra, MD, Volvo Car India.

“We are grateful to the government for maintaining the GST rate for BEVs (battery electric vehicles) at the same level, which ensures a quicker transition to a decarbonised future,” continued Santosh Iyer, MD&CEO, Mercedes-Benz India.

All auto segments benefited from the GST Council’s ruling as well. The tax rate for small automobiles, which are defined as vehicles up to 4 metres in length and having an engine size of up to 1,200 cc for petrol and 1,500 cc for diesel, was lowered from 28% to 18%. This is anticipated to lower the cost of traditional entry-level vehicles, putting more pressure on EVs to compete in the mass market.

The modification was more of a rationalisation for larger trucks. Previously subject to an effective duty of about 50% (28 per cent GST plus up to 22 per cent cess), large ICE (internal combustion engine) cars are now subject to a 40 per cent tax. Large, powerful hybrid vehicles that were formerly subject to a tax rate of about 43% (28 per cent GST plus 15% cess) are now subject to the same 40% slab.