Will GST 2.0 Slow India’s EV Push? Industry experts fear a steep tax hike on premium electric cars could derail adoption. As India’s GST Council begins its two-day meeting on September 3–4, 2025, a sweeping reform of the tax regime is underway. While the revamp promises lower tax rates for everyday items and mass-market cars, it may spell a substantial price shock for luxury electric vehicles (EVs), driving up their cost by as much as ₹7 lakh for consumers.
Broad reforms aim to simplify GST to two slabs
At the heart of this overhaul is Prime Minister Narendra Modi’s ambition to streamline India’s GST structure, moving from the current four slabs (5%, 12%, 18%, 28%) towards just two: 5% and 18%. The reform is expected to lower taxes on over 400 everyday products, including personal care items and electronics, and benefit sectors like FMCG and consumer durables. States are also exploring compensation for expected revenue losses.
Within the auto sector, this rationalisation promises relief for buyers of small cars and two-wheelers, potentially cutting GST from 28% (plus cess) down to 18%, thereby lightening the tax burden substantially.
But luxury EVs may face a steep tax spike
In contrast with the consumer relief narrative, the tax panel has recommended a steep rise in GST for high-end electric cars. EVs priced between ₹20 lakh and ₹40 lakh could see their GST elevated from the current 5% to 18%, while those above ₹40 lakh may see even higher levies—up to 28%, and potentially a new 40% slab reserved for luxury goods.
Should GST rise to 18% on a ₹20 lakh EV, the tax component alone would increase by ₹2.6 lakh; for a ₹40 lakh EV, moving to 28% could tack on nearly ₹9.2 lakh in GST—a staggering ₹7 lakh jump over current levels.
Why are luxury EVs being targeted?
The tax panel justifies the proposal on the grounds that high-end EVs cater to the “upper segment” and are mostly imported, unlike cheaper options that support domestic manufacturing and mass adoption. The additional revenue is intended to offset the anticipated loss from tax cuts on essential goods.
A blow to EV adoption momentum
Industry players have been quick to register concerns. EV manufacturers argue that the concessional 5% GST has been instrumental in making electric vehicles affordable, especially amid India’s nascent but fast-growing EV market. They warn that a hike would undermine recent gains and slow down adoption at a critical juncture.
Executive voices from domestic leaders like Tata Motors emphasize the importance of maintaining incentives to sustain sales momentum, while global brands such as BMW and Mercedes-Benz warn of the risk of derailing EV growth and local manufacturing potential.
Market already showing signs of concern
Investor sentiment appears fragile. Shares of key Indian automakers, including Tata Motors and Mahindra & Mahindra, have declined following reports of the proposed GST hikes. Auto sales also show signs of dipping as consumers await clarifications.
A dual-edged reform: relief for some, burden for others
The proposed reform paints a mixed picture. On one hand, small cars, internal combustion and hybrid models may benefit through lower taxes, with SUVs and larger engine cars seeing modest reductions or stability. On the other, luxury EV buyers may face a tax shock under this new regime.
What lies ahead
As the GST Council meets on September 3–4, chaired by Finance Minister Nirmala Sitharaman, all eyes are on whether the Council will adopt the tax panel’s recommendation or chart a middle path. Key decisions ahead include whether to retain the new 28% EV slab or move luxury EVs into a new 40% bracket—and how to balance long-term EV policy goals with fiscal needs.
The consumer impact
For buyers considering high-end EVs right now—such as Tesla’s Model Y (with a base price of around $65,000 or ~₹60 lakh)—this could mean a cost increase of several lakh rupees. Meanwhile, for mass-market models like Tata Nexon EV or MG ZS EV, GST will likely stay at 5%, preserving affordability for middle-class consumers.
India’s GST overhaul is a pivotal moment for the EV sector. While the move to simpler tax slabs promises relief for many, the proposed steep GST hike on luxury EVs raises the risk of up to ₹7 lakh extra cost for buyers. The outcome of the GST Council deliberation will be critical in shaping India’s EV trajectory—balancing fiscal prudence, environmental goals, and equitable access to clean mobility.